Future Building 2017 by Infrastructure Partnerships Australia

futurebuilding The Australian Infrastructure Review

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Contents

futurebuilding The Australian Infrastructure Review

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Chairman’s Foreword | Adrian Kloeden, Chairman, Infrastructure Partnerships Australia

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Dominic Perrottet | New South Wales Treasurer

Restoring Australia’s productivity growth | panel discussion

John Pickhaver | Co-Head, Australia and New Zealand, Macquarie Capital

The Hon Mark Birrell | Chairman, Infrastructure Australia

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Foreword

Chairman’s Foreword I am delighted to present this edition of Future Building – the proceedings of Partnerships 2017, Australia’s most prestigious annual gathering of infrastructure leaders. On the one hand, this year’s programme spoke to the heavy political overlay impacting infrastructure projects and markets – with New South Wales Treasurer Dominic Perrottet’s opening address noting that ‘the road to hell is paved with government interventions’. But the proceedings also spoke to countervailing positives, with a booming project market in New South Wales and Victoria, and with mounting demand for economic and social infrastructure across the country. Our keynote addresses by Dr Kerry Schott AO (energy markets), John Pickhaver (capital markets) and Mark Birrell (national reform) each outlined challenges and opportunities ahead. While our respected leaders, special purpose vehicles, transport technology and investment panels provided deep perspectives about our historical strengths, contemporary challenges and forward requirements. Given the heavy national political overlay in infrastructure, I was particularly pleased that we were able to present the Federal Minister for Urban Infrastructure and his Opposition counterpart, Paul Fletcher and Anthony Albanese, respectively. Infrastructure Partnerships Australia has an important role as the fearless and honest broker in infrastructure policy, which was reflected in Paul and Anthony’s agreement to address the topic ‘The things we agree on’, complete with real agreements – and delivered with genuine good humour. I hope you find that the proceedings of Partnerships 2017 offer you new insights into Australia’s infrastructure challenges – and how they can each be addressed. Yours faithfully,

Adrian Kloeden Chairman, Infrastructure Partnerships Australia

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A strategy to secure the future By Darren Chester, Minister for Infrastructure and Transport

Securing our productivity and competitive edge is a major driver behind the Government’s $75-billion budget commitment in infrastructure funding over 10 years, which will support intermodals and upgrades to road and rail connections to our ports. We are enhancing transport links, and are unlocking the potential of our cities and regions to ensure that we not only meet the growing domestic demand for goods and services, but that we also maintain our global competitiveness. To progress the government’s vision, we are developing a National Freight and Supply Chain Strategy. The strategy is being developed via an inquiry into National Freight and Supply Chain Priorities. The inquiry will set out what challenges and opportunities lie ahead, and describe how we can take advantage of them. The inquiry team received more than 100 responses on the discussion paper to support the development of the strategy from across the freight network, including consumers, business owners, producers, farmers and freight operators. These responses will help us to examine how our investment in the freight network can boost the nation’s prosperity and meet community expectations. I expect to take the strategy to the

Council of Australian Governments (COAG) Transport and Infrastructure Council next year, and I would like to acknowledge everyone who has provided input to the inquiry. The Australian Government is also investing an additional $8.4 billion to build the signature Inland Rail route between Melbourne and Brisbane, with a public-private partnership to finance the complex Toowoomba-toBrisbane section. There is no doubt that Inland Rail will transform Australia’s freight network and boost regional growth for generations to come. At the beginning of September, the government called for companies to register their interest to be the first to construct a section of the Inland Rail route. Submissions to build the 107-kilometre Parkes-to-Narromine section closed on 22 September. When completed, the Inland Rail project will provide a high-performance 1700-kilometre freight rail corridor. Inland Rail will have the capacity of 110 B-doubles, and will be capable

‘There is no doubt that Inland Rail will transform Australia’s freight network and boost regional growth for generations to come’ 1

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of moving double-stacked containers. Many goods may not begin their journey at either end of the Inland Rail line, but rather in the middle – in regional Australia. It is estimated that this project will transfer two million tonnes of agricultural freight from road to rail, significantly reducing the number of trucks on major regional supply routes, and improving road safety for heavy vehicles and other road users. The decision to fund the construction of the Inland Rail will also give regional businesses the certainty needed to invest in export growth by tackling freight delivery costs head on, and realising opportunities that will be available for generations to come. ♦ Darren Chester, Minister for Infrastructure and Transport

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Dominic Perrottet, New South Wales Treasurer

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Dominic Perrottet, New South Wales Treasurer Key points: • • •

Infrastructure is about making both the economy and society thrive. New South Wales is leading the country because of the funding capacity from asset recycling. The ongoing spectre of political interventions in markets and projects is a growing concern.

I believe that there has never been a better time to be in the infrastructure game in New South Wales. Sydney now accounts for more than half of the cranes in Australian skies – a number that once again increased last quarter. Our recent budget invested another $73 billion in infrastructure to keep this revolution rolling on. Boral CEO Mike Kane said recently he expects the infrastructure boom to last for 10 years – and for it to be even better for business than the housing construction surge we have

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seen. But our motivation is not about building and construction. Whilst it is exciting to see an enormous amount of activity, we are not embarking on this ambitious programme simply because we love pouring concrete and raising steel. As a Treasurer, and as a Government, we never lose sight of the fact that we are on a mission to make our state the best place to live, work, raise a family and run a business. We are passionate about building infrastructure because it contributes to improving the quality of people’s lives. A new metro means a quicker trip home to join the family

Dominic Perrottet, New South Wales Treasurer

for dinner. New classrooms help our children to reach their full potential. New social housing gives struggling families the security of a home. New motorways clear traffic from local roads and help small businesses to get products to market faster. While we are all from different backgrounds, this is the real business we are in together – building a better New South Wales for our citizens and the communities in which they live. As Treasurer, I always like to remind myself that with each spreadsheet entry and funding allocation, we are writing the future story of our state. Each time we sign a contract, cut a ribbon or lay track, we are adding new chapters to this story. The cranes in the sky, the tunnelling machines underground and the jackhammers on our streets are the tools we are using to write its pages. I consider the people in this room today to be among this story’s most important authors and characters, so I want to acknowledge and thank you for the contribution you and your organisations are making to building the future New South Wales; but this story is not yet complete. There are challenges that lie ahead. I want to outline for you what the next chapter might look like, and why I believe our infrastructure agenda is vital to our prosperity. Along George Street, the CBD and South East Light Rail project is in full swing. It’s just one of the many parts of our city and state under construction as we build the metros, museums and motorways of tomorrow. Our Government understands the inconvenience this causes our citizens as they try to go about their everyday lives. When the construction dust settles, New South Wales in 2025 and beyond will be a very different place. Fast forward to the future and imagine for a moment you live in Newcastle. Light rail runs every 7.5 minutes during peak hour, taking you along a revitalised urban business precinct. From there, you can drive south along the newly upgraded Pacific Highway. Approaching Sydney, you dip into a sleek, modern ninekilometre tunnel – this is NorthConnex, connecting our north to the CBD and the west. Above you, Pennant Hills Road carries 5,000 fewer trucks a day. It is quieter. It is safer. The air is better and local public transport options are more reliable. Driving nonstop at 80 kilometres per hour, you get onto the M2 and link up with New South Wales’ second major city: Parramatta. After visiting the new high-rise school campus, you can catch the light rail to get to the world-class Westmead Health Precinct, the new Western Sydney Stadium, the new Powerhouse Museum or the Riverside Theatre. From here, you can take the M4 and M7 to the new Western Sydney Airport at Badgerys Creek – one of the two world-class airports in our state.

Sydney Metro Tunnel. Source: Transport for NSW

To get to Sydney Airport, you can drive from Parramatta along the widened M4 and then underground, bypassing a liberated Parramatta Road, cruising on the western edge of the city using the M4–M5 link. This is WestConnex – an essential addition to our city’s circulatory system, removing congestion and increasing the flow of freight, and supporting the economic heartbeat of Sydney. From Penrith to the western edge of the CBD, you will be able to travel without stopping at a single traffic light, cutting up to 40 minutes from the average peak-hour journey today. From the airport, you can drive north to the new world-class Northern Beaches Hospital, using new motorways to get there quickly and reliably while bypassing the CBD. From the north-west, if you need to go to the CBD or out west towards Bankstown, you can skip the road and go by rail. Your trip on the new Sydney Metro takes you through major centres like Castle Hill, Macquarie Park and Chatswood, under Sydney Harbour into the CBD, and then south-west through Sydenham and out to Bankstown. You won’t even have to look at a timetable – trains will come every four minutes during peak hour. On weekends, you can spend time on our revitalised harbour foreshore – a true jewel in the Pacific. You can stroll through Barangaroo, experience a rejuvenated Circular Quay with family and friends, take in a concert at the new International Convention Centre, or go shopping in the restored The Rocks precinct. You could then visit the new Sydney Modern Art Gallery, right on the edge of the Royal Botanic Gardens, or stop in for a drink at the new rooftop bar at the State Library of New South Wales and gaze upon world icons, such as the Opera House and Harbour Bridge, lit up at night for the Vivid Sydney festival, which attracts visitors from around the globe. You’ll then be able to catch the light rail up George Street and out to the eastern suburbs, stopping off at the Randwick

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Dominic Perrottet, New South Wales Treasurer

WestConnex. Source: Sydney Motorway Corporation

Health and Education Precinct or to watch a sporting match at a world-class stadium in Sydney’s east. From there, you can head south from Port Botany to major centres, like Wollongong and beyond, using upgraded motorways, creating a better connection between Sydney and the South Coast. This is but a glimpse of New South Wales beyond 2025 – a modern, global and connected state. A state with three separate, yet equally important cities: an eastern city, Sydney; a central city, Parramatta; and a western city, around the Western Sydney Airport. They will all be connected to each other, and to our regional economic centres. Each area will have world-class transport, schools and hospitals – the foundations required for people to thrive. This is the future that we are constructing today. This vision of New South Wales beyond 2025 is something we have long aspired to achieve; but for many years, it remained words trapped on a piece of paper. While services and infrastructure were under increasing pressure as our population grew, state budgets were too tight and stretched to cope. Previous administrations had no way of

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solving this problem without raising taxes or increasing debt – the result was that many did not act at all. The previous state government, with the best intentions in the world, released transport plan after transport plan, but it could never deploy the financial firepower needed – this resulted in their projects remaining stuck on the drawing board. Something had to change – a new approach was needed. In 2011, we decided not to simply tax and spend, borrow more money or kick the can down the road for future generations. We realised that we, as governments have to use our resources and capital more intelligently in order to make the most of what we already have. Asset recycling is the answer to the dilemma that plagues every government. This means divesting old assets and then reinvesting that money into newer assets that work. This approach has secured New South Wales $20 billion to help to rebuild the state through the electricity network transactions. Instead of owning a power pole outside your house, you can have a new school or hospital around the corner. It has allowed us to divest old and expensive social housing stock, freeing up capital to build three times as many houses

Dominic Perrottet, New South Wales Treasurer

across the state, providing hope to the 60,000 people currently on the waiting list. It has allowed us to build costly, but vital, infrastructure while maintaining our commitment to fiscal responsibility, and protecting our AAA credit rating. New South Wales is on track to be the first state to have a net worth of $250 billion. Asset recycling is why Infrastructure Partnerships Australia called our last state budget an ‘infrastructure budget’; it puts hard dollars behind actual transport, health and education projects – which is in stark contrast to other states. Infrastructure is not only the backbone of our future state – it is the backbone of our current fiscal strength. There would be few jurisdictions around the world that could point to a healthy budget surplus, negative net debt, growing net worth and a record infrastructure spend. Recent economic data has also been positive. Business investment, public infrastructure and dwelling construction have been strong, helping to lift construction activity, driving employment and productivity growth. Unemployment is at five per cent – the lowest of any state across Australia. This increase in activity has created an extra 92,000 full-time jobs in New South Wales over the last year. Housing approvals are at record levels, totalling 70,000 for the past financial year, while capital expenditure in New South Wales is the highest in the nation for the first time in more than a decade. New South Wales also has the strongest business conditions and confidence of the mainland states, and consumers here are among the most confident in the nation. The lesson for governments is that investing in infrastructure is a strategic way to boost growth. Central banks have been trying monetary stimulus for some time, but the New South Wales experience proves that economies can be kickstarted with large-scale infrastructure investment. In fact, we estimate that our infrastructure agenda alone will add around half a percentage point to the state’s Gross State Product (GSP) over the next two years. Despite all these benefits, New South Wales continues to be penalised for our success. A recent survey conducted by Infrastructure Partnerships Australia shows that the majority of Queenslanders want their government to use asset recycling to fund infrastructure, as opposed to raising taxes or increasing debt. Whilst in New South Wales we have reformed, our neighbours up north have refused to do so, putting political ideology before the progress of their people. Whilst we are busy building up our infrastructure, they are busy building up their back-office bureaucrats. And thanks to the current GST distribution system, their failure to reform is being rewarded.

Over the next four years, the taxpayers of New South Wales are underwriting the poor decisions of the lazy Queensland Government by handing over more than $6 billion. This is an unfair system that needs to change. In terms of infrastructure, the good news is that our plans are just beginning. Being a good government is about managing dual horizons – what is in front of us and what is yet to come. Our last budget signalled a number of important infrastructure priorities that we are now turning our minds to. Over the next four years, we are undertaking more than $41 billion of major capital works in the transport sector alone. Development and planning funding has been allocated for the proposed Western Harbour Tunnel, Beaches Link and F6 Extension. Each of these projects will need detailed business cases before any investment decisions are made. Work continues on the Sydney Metro City and Southwest – a project that will make room for an extra 100,000 train commuters per hour. In Western Sydney, significant capital is being invested to support the second airport at Badgerys Creek, generating tens of thousands of jobs in the process. But our building agenda is much broader than transport. Over the next four years, record amounts are being invested to build and upgrade more than 90 schools, creating an additional 1,500 classrooms to accommodate growing demand. We have also kicked off the biggest programme of hospital building this state has ever seen. There will be new and upgraded hospitals in a number of areas, including Concord, Campbelltown, Nepean, Tweed and Randwick. Cultural institutions are not being neglected, either, with ambitious plans for new museums and sporting facilities, in both regional and metropolitan New South Wales. On the asset recycling front, we will continue to proceed with our plans to sell a 51 per cent stake in Sydney Motorway Corporation, to help fund construction of the next phase of WestConnex, the M4–M5 link. This will mean that it is built sooner, and the people of New South Wales will continue to benefit from the growth in the value of the Government’s ongoing shareholding. We are also in discussions with the Federal Government around the future of Snowy Hydro. At a time when energy prices and energy security are top of mind for this Government, it is important that we consider the future of this asset carefully. It now presents another opportunity to unlock value and fast-track important projects needed to secure our future. While on the topic of energy, I do want to make some observations. I am a firm believer that renewable energy sources are the energy of the future. The energy network of tomorrow will be distributed and decentralised, relying on clean and green technology, in contrast to the model we have today. Current

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Dominic Perrottet, New South Wales Treasurer

CBD and South East light rail. Source: Transport for NSW

projections say that this future could be here as close as the 2030s, but we are not there yet. This is evident in the recent blackouts that have occurred, and the actions taken by the Federal Government to try to guarantee energy supply through projects such as Snowy Hydro 2.0 and the Liddell Power Station. Current energy policy settings are having the effect that was intended – to disincentivise traditional sources of power generation by making them economically unviable. But this heavy-handed approach is having real impacts on families, communities and industry. In a first-world country, our citizens have the right to affordable, reliable and secure energy. While the 2030s are not far away, we have to be realistic in the meantime – we cannot stand by and accept 20 years of rolling blackouts and crippling energy bills. It makes sense to continue investing in traditional sources of energy generation, while at the same time managing the transition to a renewable future.

Right now, our main priority should be ensuring the reliability of our energy supply. I also agree with Professor Gary Banks AO, who said earlier this year at Infrastructure Partnerships Australia’s Annual Infrastructure Oration: ‘The inconvenient truth is that the increasingly high prices for increasingly unreliable electricity are a direct consequence of the increasingly high utilisation of renewable energy required by government regulation’. Whether it’s pink batts, school halls, the National Broadband Network (NBN) or the energy market, ill-thought-out government interference in private markets for purely ideological purposes almost never ends well, especially for the end consumer. They say the road to hell is paved with good intentions – I believe it’s also paved with government interventions. Our infrastructure agenda has been instrumental in securing our current and future prosperity. It is the cornerstone of our solid budgetary position. It is helping us build the city and state we all want to live in, and it has catapulted New South Wales from last to first.

Dominic Perrottet – New South Wales Treasurer and Minister for Industrial Relations Dominic Perrottet grew up in the Hills District, and was educated at Redfield College and Oakhill College, before graduating from Sydney University with a Bachelor’s degree in Commerce/Law. Before entering Parliament, Mr Perrottet worked as a solicitor at Henry Davis York Lawyers in the areas of banking restructuring and insolvency law. At university, Mr Perrottet became involved in student politics and served as a member of the Student Representative Council, and was elected president of the Sydney University Liberal Club. He was also elected as the President of the New South Wales Young Liberal Movement, and served on the State Executive of the New South Wales Liberal Party. In March 2015, Mr Perrottet was elected as the State Member for Hawkesbury (having been elected as the State Member for Castle Hill in 2011), and in April 2015, was appointed as the State Minister for Finance, Services and Property. In January 2017, Mr Perrottet was elected Deputy Leader of the New South Wales Liberal Party and appointed State Treasurer and Minister for Industrial Relations.

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CommBank’s innovative approach to social infrastructure Social infrastructure is front of mind for governments, as population growth drives demand for housing and transport solutions. The Commonwealth Bank of Australia’s (CommBank’s) focus on collaboration and stakeholder engagement is helping governments and the private sector to drive a new wave of social infrastructure projects. Social infrastructure is broadly defined as the construction and maintenance of facilities that support social services and require government funding to be viable. Projects include some hospitals, schools and universities, community housing, correctional facilities, railways, and roads. ‘We strongly believe in the potential of social infrastructure in Australia,’ says Chris Jones, Director of Infrastructure at CommBank. ‘Done well, these projects can deliver social outcomes for communities that last decades, while minimising risks for governments and taxpayers.’ As a leading infrastructure financier, CommBank is well placed to address community problems, such as affordable housing, through innovative social infrastructure funding. CommBank was instrumental in jointly establishing the first aggregated funding vehicle for Australian local government authorities in 2014. The funding vehicle pools individual borrowers, such as local councils, who do not have a credit rating because of their small size and the cost involved. This form of funding allows borrowers to access capital markets and achieve cheaper funding for social infrastructure projects. ‘It’s a model used extensively overseas, but it’s still finding its feet in

Chris Jones Director, Infrastructure Commonwealth Bank

James Bramley Asset Director, Asia Pacific John Laing

‘Everything is about delivering a project that meets the government’s goals, helps the community and minimises risk wherever possible’ Australia,’ says Jones. ‘Pooling models

affordable housing projects around

have enormous potential to provide an

Australia,’ says Jones. ‘Social housing

alternative source of funds for social

is an area CommBank is willing to lead,

infrastructure generally, as well as

and our strengths in debt markets and

social housing projects to help increase

social infrastructure can deliver benefits

the supply of affordable housing for

to governments at all levels, the private

those on lower incomes.’

sector, and the community. We want to

Jones says this solution benefits borrowers and investors, such as superannuation funds. ‘Funding vehicles can further facilitate investment in social and

make social housing projects happen.’ ‘The diversification of borrowers in the funding vehicle lowers risk, in turn creating a pricing benefit for the debt. Investors get a higher return than Continued on page 11

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Better Today. Brighter Tomorrow

Sydney Light Rail driving innovation in social infrastructure.

“John Laing and Commonwealth Bank have a strong, reciprocal relationship on social infrastructure and a shared passion to develop assets with long-term community benefits.” James Bramley Asset Director, Asia Pacific John Laing

How John Laing and Commonwealth Bank’s close cooperation finances and delivers social infrastructure projects. Global infrastructure investor John Laing Group plc is building on its relationship with the Commonwealth Bank (CommBank) to develop the transformative CBD and South East Light Rail project in Sydney and drive innovation in social infrastructure projects. John Laing, an originator, active investor and manager of infrastructure projects, is part of the ALTRAC Light Rail consortium the New South Wales Government in December 2014 chose to design, build and operate the $2.1-billion CBD and South East Light Rail project. ALTRAC is owned by John Laing, First State Super and Acciona Concesiones, and involves Transdev Sydney, Alstom Transport Australia, Acciona Infrastructure Australia and Capella Capital. As lead arranger to the financing syndicate, CommBank led the debt funding for the project, bringing three international banks into the four-member syndicate. “We are helping deliver a world-class solution for reliable, high-capacity light rail services for Sydney commuters,” says James Bramley, Asset Director, Asia Pacific, at John Laing. “Sydney Light Rail will reinforce the benefits that outstanding social infrastructure brings to cities.” The 12-kilometre route, under construction since 2015, extends from Circular Quay along George Street to Central Station, then through Surry Hills, Moore Park, Kensington and Randwick.

The “turn-up-and-go” Sydney Light Rail service will operate up to every four minutes in peak times between the CBD and Moore Park and every eight minutes along the Randwick and Kingsford branch lines. Featuring 19 stops, it will reduce traffic congestion, improve traffic to and from the CBD and will create a one-kilometre pedestrianised zone along George Street in the heart of the CBD. Bramley says CommBank’s experience in social infrastructure benefits the CBD and South East Light Rail project and is a reason John Laing is working with the bank on several current and potentially upcoming infrastructure projects. “There is good alignment between John Laing and CommBank in the way we approach infrastructure projects,” says Bramley. “John Laing is an active investor that is not afraid to get involved to improve project performance. CommBank has a similar mindset that manifests in extensive due diligence and monitoring of projects.” CommBank’s global reach is another strength, says Bramley. “John Laing works on infrastructure projects in the United States, Europe and Asia Pacific. Having an Australian bank that can bring in global financiers, and work with John Laing as it expands in the Asia Pacific, is an advantage. CommBank’s knowledge of infrastructure in Asia Pacific is a real asset.”

The CBD and Sydney Light Rail is the second rail project involving John Laing and CommBank. In addition, CommBank provided finance for three other recent projects. John Laing is part of a consortium the Queensland Government selected in November 2013 for the New Generation Rollingstock project. That involves providing and maintaining 75 new six-car trains for 30 years for the South-East Queensland suburban passenger rail network. The new Royal Adelaide Hospital, the largest social-infrastructure project in South Australia’s history, includes John Laing as part of the Celsus (formerly SA Health Partnership) consortium. In regional NSW, John Laing is part of the Northern Pathways consortium designing, constructing, operating and maintaining the new Grafton Correction Centre. Bramley expects John Laing will continue to work with CommBank and develop bids for upcoming social-infrastructure projects. “Our organisations have a strong, reciprocal relationship on social infrastructure and a shared passion to develop assets with longterm community benefits.” To learn more visit: commbank.com.au/infrastructure laing.com

Fast Facts about Sydney CBD and South East Light Rail project. 1.

$2.1 billion Light Rail project in Sydney’s CBD and South East.

12-kilometre route extends from Circular Quay through to Surry Hills, Moore Park, Kensington and Randwick.

Service to operate every four minutes in peak times between CBD and Moore Park. of Australia

Commonwealth Bank of Australia ABN 48 123 123 124

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Continued from page 9

to lead its social infrastructure client strategy. ‘Providing solutions to the government sector is in our DNA. From debt markets to the bank’s pioneering work in social impact bonds and infrastructure, we have vast experience in government and not-for-profit sectors, as well as [the] private sector, and we draw on that knowledge for social infrastructure projects.’

Sydney Light Rail. Photo supplied by TfNSW

regular capital market investments, and the long duration of affordable housing projects suits the investment horizon of superannuation funds.’ Jones says momentum is building in social housing investment. New South Wales Premier Gladys Berejiklian in June announced a series of housing affordability reforms to increase housing supply. The Victorian Government in February 2017 announced it would invest $1 billion in a social housing growth fund over four years, to increase the state’s social housing stock.

Strong foundations in infrastructure CommBank has a proud infrastructure history. It has been involved in almost every major Australian nation-building project, and is known for developing innovative funding solutions for economic and social infrastructure assets across sectors. Jones says CommBank’s

An ability to engage governments, says Jones, is vital. ‘We look carefully at what a government wants from a social infrastructure project to ensure appropriate risk allocation, project parameters and consortium selection. Everything is about delivering a project that meets the government’s goals, helps the community and minimises risk wherever possible.’ Jones says CommBank’s extensive due diligence process is a strength. ‘We spend months checking that the project can be built for the contracted price, delivered on time and operated appropriately, and ensure that projects align with the procuring authority’s specifications, the Equator Principles and sustainablility policies.’ CommBank’s ability to drive collaboration is a point of difference, says James Bramley, Asset Director, Asia Pacific, at John Laing. ‘CommBank is very good to work with on social infrastructure projects. Like John Laing, the bank is active in projects and strives to get the best outcome consistently for stakeholders.’ CommBank and John Laing have worked together on several developments, notably the CBD and South East Light Rail project.

government sector expertise

Social infrastructure’s bold future

encouraged him to join the bank in 2016

Jones is buoyed by the work of state

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governments, most recently that of New South Wales and Victoria, in social infrastructure. ‘It’s clearly front of mind for governments, as population growth drives demand for new social infrastructure, or renewal of existing assets.’ Jones says the New South Wales and Victorian governments are leading a highly integrated approach to social infrastructure. ‘The days of building a rail line to a new residential development, without appropriate social infrastructure, are long gone; governments know they need integrated social infrastructure across transport, health, education and other sectors, to create sustainable benefits for the community.’ Governments, he says, are also more adept at working with the private sector on social infrastructure through public-private partnerships (PPPs). ‘Governments are much better at ensuring that consortiums will deliver what they say they will, and acknowledge the benefits financiers like CommBank bring to the table, including extensive due diligence and project monitoring.’ Jones says governments, the private sector and the community will always need to deliver long-term vision in social infrastructure. ‘The Sydney Harbour Bridge, remarkably, is still doing today what it was designed to do in 1932. The government had the foresight to create an asset that would benefit the community for decades. That type of multi-generational thinking – and passion to do the right thing by the community – can drive a new era of social infrastructure projects.’ ♦ To learn more visit: commbank.com.au/infrastructure

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Queensland’s approach to infrastructure planning scores strong industry support The updated plan provides industry, local government and the community with confidence and certainty in the state’s commitment to current and future projects.

Department of Infrastructure, Local Government and Planning

State Infrastructure Plan Part B: Program – �� update

The Queensland Government has initiated and delivered a range of economic and jobs-boosting infrastructure throughout the state since the release of the State Infrastructure Plan (SIP) in 2016. The SIP is guiding investment in the state over four years through the Queensland Government’s $42.7 billion of budgeted infrastructure funding, and beyond that, through the pipeline of projects in planning and future opportunities. The July 2017 update to Part B of the SIP includes a visualisation of Queensland’s infrastructure pipeline, a new regional planning section, the progress in implementing the plan’s priorities, and an overview of the Cross River Rail project. ‘Industry response to the update has been very encouraging,’ says Queensland Deputy Premier, Minister for Transport and Minister for Infrastructure and Planning Jackie Trad. ‘Feedback from a range of stakeholders demonstrates strong support for the improved coordination across government around infrastructure planning.’

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The SIP 2017 update showing the Warrego Highway – Jingi Jingi Creek culverts under construction. Photo credit: TMR

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The SIP update shows that in the last year the State Infrastructure Fund has committed $1.6 billion. It reveals that more than 400 construction projects were approved, completed

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The Kenya to Chinchilla Pipeline construction is a SIP water project. Photo credit: SunWater

or are underway, including three new hospitals and four new schools, 129 kilometres of state-controlled road, and 1200 megawatts of renewable energy projects.

response to industry feedback, we’re

Other highlights included the facilitation of a $13-billion tourism infrastructure pipeline, $320 million in infrastructure for the Gold Coast Commonwealth Games, and 700 local government projects in regional areas through the Works for Queensland (W4Q) program.

Local Government and Planning has

Another $10.2 billion in infrastructure investment is expected in 2017–18, with $4.8 billion earmarked for regional Queensland. In South East Queensland, the flagship $5.4 billion Cross River Rail project will transform transportation networks and regional mobility.

work has informed the SIP update.

‘The updated SIP is designed to maximise certainty about Queensland’s infrastructure priorities,’ says Trad. ‘In

providing more information to help the private and local government sectors with their infrastructure planning.’ The Department of Infrastructure, worked closely with local governments, the Local Government Association of Queensland, and the infrastructure industry, including the Infrastructure Association of Queensland (IAQ), Engineers Australia and the Queensland Major Contractors Association, and this The Queensland Government’s approach to infrastructure planning received a high approval rating from respondents in an IAQ survey.

State’s innovative infrastructure strategy Released in March 2016 after extensive industry consultation, the SIP is a

bold infrastructure reform agenda for Queensland. It outlines the Queensland Government’s strategic direction for the planning, investment and delivery of the state’s infrastructure. A feature of the SIP is the ability to scope for market-led proposals from the private sector that seek an exclusive commercial arrangement with the Queensland Government to provide a service or infrastructure that will meet a community need. ‘Market-led proposals were introduced in 2015 as part of the Palaszczuk Government’s plan to create jobs and stimulate the economy by encouraging the market to come to government with infrastructure ideas and opportunities,’ says Trad. The SIP has two sections: Part A: Strategy, which sets the vision to guide infrastructure investment in Queensland and is updated every five years; and

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‘The pipeline provides a coordinated and integrated approach to planning, prioritising, funding and delivering infrastructure’ Part B: Program, which provides a four-year program of infrastructure investment to be updated and reviewed annually in line with the state budget.

Plan highlights The updated SIP visualises how projects mature from concepts to funded government projects, through the Queensland infrastructure pipeline. The pipeline provides a coordinated and integrated approach to planning, prioritising, funding and delivering infrastructure in Queensland. ‘Industry asked for greater clarity on infrastructure projects over the horizon,’ says Trad. ‘The SIP reflects our commitment to a strong pipeline of infrastructure investment, giving industry the certainty and confidence to invest in our state.’ The SIP also includes extra information on regional infrastructure planning and projects. Through the ShapingSEQ – South East Queensland Regional Plan, and the forthcoming North Queensland Regional Plan, the Queensland Government is delivering a more integrated approach to infrastructure planning. The consultation process identified strong interest in the government’s approach to region-shaping infrastructure. The updated SIP includes information on key regional infrastructure commitments

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and where they are in the pipeline. Future SIP updates will also be informed by regional plans as they progress. Better linkages between the Queensland and national infrastructure pipeline is another SIP feature. The SIP pipeline includes 16 Queenslandspecific proposals and other national infrastructure initiatives relevant to the state, from Infrastructure Australia’s February 2017 Infrastructure Priority List (IPL). Industry has asked for more information on Queensland projects in the context of national infrastructure planning. The latest SIP includes the IPL projects in the pipelines of projects in the planning phase, or those that have been funded in the 1–4 year program. Detailed information on implementation is also provided. The SIP outlines 19 implementation actions and their status. Implementation actions are reviewed annually to ensure the continued improvement of planning and delivery of critical infrastructure.

Emphasis on project delivery The 2017 SIP update confirms the Queensland Government’s current infrastructure program across 10 asset classes. Each asset class lists projects, estimated costs, funding sources and expected funding allocations across four

Jackie Trad, Queensland Deputy Premier, Minister for Transport, Minister for Infrastructure and Planning

years, and includes a visualisation of key infrastructure projects and their status. ‘The SIP is guiding investment across Queensland with a focus on infrastructure delivery,’ says Trad. ‘With a clear focus on project delivery, we ensure that we deliver the infrastructure we need, when we need it.’ The Deputy Premier says the SIP will continue to add more value for industry, local government and the community. ‘Through the SIP, we are catering for the future needs of our community with clarity and purpose. We are committed to working with industry, listening to their needs and responding. The updated SIP is another step in helping business and government work together on critical infrastructure that helps communities across Queensland.’ ♦ Learn more about the Queensland Government’s State Infrastructure Plan at dilgp.qld.gov.au/infrastructure.

Department of Infrastructure, Local Government and Planning

Infrastructure in Queensland Supporting better places to live, work and play The Queensland Government’s continuing infrastructure reform is underpinned by the State Infrastructure Plan, market-led proposals, and building Queensland’s infrastructure pipeline. • Cross River Rail – will deliver more jobs and better public transport in South East Queensland. • $42.75 billion for capital works over four years – a sustainable and credible program of investment. • $2.2 billion State Infrastructure Fund – continues to deliver the infrastructure Queensland needs to drive economic growth across the state. • Australia’s first City Deal in Townsville – in partnership with the Australian Government and Townsville City Council. Keep up to date at www.dilgp.qld.gov.au

Authorised by the Queensland Government, William Street, Brisbane

Restoring Australia’s productivity growth – panel discussion

Restoring Australia’s productivity growth Key points: • • •

National policy needs to focus on coordinated action on infrastructure, across industry and the tiers of government. Rigorous analysis and thorough planning is the best way to depoliticise infrastructure. Australia must remain ‘pro investment’ – including foreign investment.

Panellists: ► ► ►

Marika Calfas, Chief Executive Officer, NSW Ports Dr Stephanie Fahey, Chief Executive, Austrade Peter Harris AO, Chairman, Productivity Commission

Moderator: ►

Brendan Lyon, Chief Executive Officer, Infrastructure Partnerships Australia

political and regulatory recognition around the importance of ports and freight to the national economy is lacking. Ports and freight are vital to our global competitiveness in terms of exports, and in managing the cost of goods for consumers and businesses. From NSW Ports’ perspective, there are a few core areas that require more attention if we are to continue to cater for the trade needs of New South Wales and Australia over the

Brendan Lyon (BL): Australia is facing a lot of investment challenges right now. How do you see the current political, infrastructure and wider economic debate?

long term. The first key area is infrastructure. We need to grow

Marika Calfas (MC): I live in a world of ports and freight, which will form the basis of my contribution to the panel. Ports and freight underpin our national economy; however, public,

through better access to and from ports.

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road and rail capacity to ports, and we need to address issues around urban congestion, as well as improving productivity Fundamental to this is the need to optimise utilisation of existing infrastructure, and to grow the capacity of ports. This

Restoring Australia’s productivity growth – panel discussion

is not an issue about investment – it is about the regulatory context in which the ports and freight operate. For example, we have a planning system that imposes operational constraints by way of caps and limits, which constrains operators from utilising existing assets more efficiently. These issues are compounded by issues of urban encroachment. This is fundamentally a planning challenge – we operate in an environment where housing is prioritised over the needs of freight and industrial uses. It is vital that we protect existing infrastructure and access to ports, and preserve our industrial lands. Another issue worth mentioning is the significant number of global operators that either invest or operate in the port space – they face very high costs of doing business in Australia, particularly from underlying costs, such as land taxes, regulatory compliance costs, labour costs and the cost of utilities. All of these underlying costs are influencing their investment decisions here. Australia also has a fragmented port supply chain system. There are many stakeholders operating in port and freight supply chains who are constrained by the regulatory arrangements that exist, where integration is secondary to competition. This does not promote cost efficiencies, reduce costs or allow for innovation and flexibility. On a positive note, freight in New South Wales and at the Commonwealth level has what is probably the highest profile it’s had in a very long time – possibly even ever. It still needs to

be given a much higher priority, but it is in a much better place than it has been in the last 10 or 20 years. That’s recognised in transport departments in New South Wales, where we have freight departments, and freight and ports plans. At the national level, we are currently developing a national freight and supply chain strategy. This recognition needs to continue generally, but also in recognition of its importance to the economy. BL: Thank you. Stephanie? Dr Stephanie Fahey (SF): Austrade is responsible for exports and promoting investment into Australia. There are challenges that we’re facing in Australia today, particularly with Foreign Direct Investment (FDI) coming into Australia, and specifically into the infrastructure sector. There is no doubt that Australia’s economy has been built on FDI – one of the main challenges is keeping Australia open for business. Another challenge is maintaining the social licence to encourage foreign investment to come and assist with the infrastructure being developed. Australia cannot do this alone. We’re a relatively small country with a population of 24 million. We’re the 13thlargest economy in the world, but with such a small population, we can’t save fast enough to invest in the infrastructure that we need to remain globally competitive. I think that one of the other issues is around not only maintaining social licence, but also ensuring that we take the whole economy forward with us. Look at what has happened in the United States and the United Kingdom, for example; if we

L–R: Peter Harris AO, Dr Stephanie Fahey, Brendan Lyon and Marika Calfas

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Restoring Australia’s productivity growth – panel discussion

ignore the spread of benefit across our communities, we do that at our own peril. Investment in infrastructure is actually a way of bringing various parts of the economy along, particularly in regional Australia. We need to keep the flow of FDI coming, but we must also keep an eye on where that investment goes to ensure that it’s inclusive. If we forget about that side of the story, then we will have bigger problems than what we anticipate. BL: Peter, you professionally worry about all of these things. What’s worrying you about the economic and social state of Australia? Peter Harris AO (PH): I think that it was in the job description. ‘Are you a born worrier? Yes? Excellent, you can go to the Productivity Commission.’ There are people in Canberra who call me a professional optimist because I keep pressing the Government to do things, so that requires some degree of optimism. The thing that bothers me most about the infrastructure debate is the continuing participation of politicians in characterising the other side’s infrastructure as being ‘bad infrastructure’, and theirs as being ‘good infrastructure’. This is an appalling way to conduct a discussion about something that genuinely matters to the future of the nation. No wonder the public is confused about whether a project is ‘good’ or ‘bad’. They see both sides agreeing and disagreeing, and the next thing they see is an impediment to walking along Circular Quay or getting down George Street in Sydney, or getting across a railway crossing in Melbourne. No wonder the public is very doubtful about the nature of these projects. I could say that this is true of the current energy debate, as well. The New South Wales Treasurer was dead right when he said, ‘The road to hell is paved with government interventions’. On interventions, it’s a question of what kind of interventions, and the quality of the interventions. The appalling thing here is seeing politicians spending no time at all on actually assessing whether a project is well planned and has positive objectives, or whether it is capable of delivering the project within the intended timeframe, at roughly the intended price. They seem to spend no time at all on good planning, but a lot of time saying, ‘It’s my project. It must be good. It’s your project, so it must be a dud’. No wonder the public is confused. BL: Peter, the Productivity Commission undertook quite a big study into public infrastructure a couple of years ago. What are you seeing in the national infrastructure debate? Could you provide us with a distillation of what your report said, and also what you are and aren’t seeing in the national debate? PH: The obvious bits of the report show that infrastructure is expensive. Of course it’s expensive – it’s being built in urban areas where land is expensive. That occupied about half the report, because that’s what the Government was primarily interested in. But at the same time, we gave them advice that

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said big unilateral interventions by government and the planning processes of infrastructure are quite often appalling. Where this is the case, it usually involves the press release first, followed by 18 months of analysis, then suppression of the analysis because it didn’t tell them what they wanted to know, then the budget allocation, then the subsequent budget allocation because that original number was ‘x’ and no-one understands the difference between that and ‘y’. But it’s a ‘budget blowout’, according to the media. For something that is so important – something that is such an enabler of productivity in this country – we do construct and run these things quite badly. We didn’t just spend the rest of the report telling the Government that this is what you’re doing badly; rather, we put forward quite detailed propositions for them on how to do it better. The particular area that stuck out, because it is unlike almost every other part of infrastructure, was roads. When you are talking about electricity, water, airports, or even rail, consumers in some way pay towards the project cost directly. Therefore, there is some link between the user and the project selection. In roads, that is not the case. Apart from a small number of toll roads, we have a tax and a set of fees. Because of this, there is a lack of user connection to planning and project selection. The Productivity Commission’s strong advice to Government is, if users were more heavily involved, you’d get better planning. Now, those people are not going to pay for the whole project, but if they can’t see the planning upfront, they will not see the value in it. This model is going to come, not because of what the Productivity Commission recommended or the fact that technology will enable it, it’s going to come because governments are going to run out of revenue to meet our expectations, because urban infrastructure is really expensive and we don’t have enough of it. What we’re not doing enough of is planning for that day. That’s in our report – three chapters were written entirely on how we should plan for that day. BL: Thank you. Marika, you’re sitting over the National Freight Report Strategy. What’s it going to be? What’s it going to do? Do you think that it’s a little pre-emptive to be locking in on things like Inland Rail if we’re about to go through a strategic planning exercise? MC: The National Freight and Supply Chain Strategy is the next phase in the work; the current phase is an inquiry into the National Freight and Supply Chain Strategy priorities. This phase won’t come out with a strategy – it is the intention, and my hope, that the next phase will move into a strategy piece. What the inquiry is now looking at are the priorities that should be dealt with in that strategy in terms of infrastructure, regulation, technology and productivity. This inquiry is also looking across different supply chains: import–export, interstate, domestic supply chains and different commodities, as well.

Restoring Australia’s productivity growth – panel discussion

As part of that prioritisation, we’re having discussions about the use of freight performance indicators. This would be a way of measuring whether our performance in freight supply chains is meeting certain standards, and whether you could benchmark them internationally. BL: So cost, time and reliability, those sorts of things? MC: Those sorts of things. You could do that end-to-end through the supply chain. This would give us a way of actually measuring whether an infrastructure investment was effective, and to what extent it has been effective. There are some complications though, particularly in relation to data availability. I am not sure what the plan is in terms of actually developing the strategy. Investment decisions can’t really wait for that. But it is very important that prioritisation is part of the thinking in terms of funding allocation. Inland Rail is an example where you should ask, ‘Is this actually the highest priority in terms of the outcome you are trying to achieve?’ If Inland Rail is premised on improving freight efficiency, reducing the cost of freight and improving the speed of transport of goods, is investing $8.4 billion into Inland Rail the best way to achieve those freight productivity outcomes? Especially when there are a few unknowns in there, such as industry saying that it needs a connection to the Port of Brisbane and the Port of Melbourne? It needs connectivity into the New South Wales network, as well. These do not form part of the Inland Rail project, and would double the cost of the project. The discussion around pricing and a user-pays systems is also very important. If Inland Rail is going to be an equity investment, then it has to recover its costs, and a bit more presumably. Will the price charged actually move freight from road to rail and in a freight route where volumes are not substantially growing? Presumably, you wouldn’t be trying to cross-subsidise the recovery of that cost across other aspects of rail. Rail is vital to our imports and exports, and it has the challenge of competing against road, which doesn’t have a user-pays pricing arrangement. BL: Thank you. Stephanie, your job is to bring money and skills into Australia. There’s obviously a little bit of turbulence at the moment. What keeps you up at night about infrastructure? SF: Austrade has 83 points of presence globally, and our job is to gather intelligence around what’s happening in all of those markets, for both our exports overseas and investment back into Australia. What we see at the moment is major disruption to the infrastructure sector, with the way it’s being intercepted with government, with pricing and how revenue is collected. For example, we look at driverless cars, driverless buses, the share economy and the old way of collecting revenue by government. We see all these changes taking place globally, then we bring

our view back to Australia, and we’ve got to get ready for the day when these changes come to Australia. So, what keeps me awake at night is whether the planning that we’re currently doing is flexible enough for the disruption that’s occurring globally, particularly within mobility. But we also need to ensure that the public sector – more specifically, the public – and the private sector are working closely together so we’re able to keep in front of this curve. If we fall behind that curve, it’s going to create big problems for the business that we’re doing here in Australia. BL: You’re still seeing a lot of interest in Australia, even with headwinds here? SF: There’s a huge amount of interest in Australia. I mean, you just have to listen to the Treasurer of New South Wales, and he does create excitement globally. But we do face some challenges in Australia. We need to project Australia as being a very safe place to invest. If you compare Australia to other global investment opportunities, Australia stacks up well even though we tend to beat up on ourselves. But if you look at the investment environment here, investors are guaranteed ownership of their assets. You might think that the domestic political situation is a little bit rocky at the moment, but it doesn’t actually change what’s happening on the ground in terms of investor confidence. Australia is still a very attractive place to invest, and we’ve got a huge amount of interest. A core part of Austrade’s role is to encourage that investment, and if it does incur any bumps in the road, we’ve got the specialists within Austrade whose job it is to talk to government, and to get them to try to iron out those bumps. BL: They sound like they’ll be busy. SF: They are busy. BL: Peter, I just wanted to turn to a point that Marika made about the Inland Rail project and the accounting model, and the fact that we will have to recover its cost to remain on the balance sheet. A theme that we’re seeing increasingly in public infrastructure is ‘innovative finance’ or off-budget accounting. Unless I missed it, you declined to recommend that as a breakthrough in your study. What do you think policymakers and Treasury departments should be conscious of when they’re taking equity risks in this way? PH: The Productivity Commission was approached in submissions to recommend a new infrastructure bank. We were approached to recommend that governments change their attitude to innovative financing. We did actually find some innovative financing options that governments could use – unsolicited project proposals are a very good example. I think that’s very wise, because not having that is just suppressing ideas, which is just anti-intellectual, anti-productivity, anti-everything; another horrible thought. But innovative financing in the sense of

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Restoring Australia’s productivity growth – panel discussion

suggesting that something could go ahead if it was off budget – because your debt profile would look better – is an extraordinarily poor way of deciding on a project. Everybody who’s here that works in the Treasury or has worked with the Treasury knows this. But again, it’s one of those populist things that rises up every couple of years in infrastructure. And everybody leapt upon that, such as by saying: ‘Glenn Stevens authorises a much larger amount of either debt or innovative financing for any infrastructure project you can possibly imagine’. BL: He would be horrified if that’s what they thought he’d said. PH: Subsequently, he did say that he was horrified by that accusation – that didn’t get much publicity. The Reserve Bank of Australia (RBA) has been careful since then. This reinforces why it is prudent to plan first through a proper allocative system, then look at what your financing options are. Sometimes, greenfield projects will be attractive to private investment. But you can only get an assessment of the financing options towards the end – once you know what your public interest objective is, you can look to see how you can marry that with a private interest objective. At that point, the private sector may be more efficient at building the infrastructure, or you may be prepared to put some risk capital into a project, as it is a medium- to long-term reliable investment. That’s quite hard to do with greenfield projects because they are rather high risk. Some greenfield projects have come at a spectacular cost to the equity holders – that’s a natural part of being in the market. But the idea that you start out by considering the financing is a very poor one. You don’t start out by saying, ‘I’ve found a new way of innovative financing now. Where are some projects that I can throw this brand new financing model?’ And yet, you read that continuously. It’s a horrible mistake. BL: Thank you. The New South Wales Treasurer has said, ‘The road to hell is paved with government intervention’. Next year, the Productivity Commission will be undertaking the five-yearly review of airport price regulation. In the lead up to that, how do you think the airports have performed post-privatisation? And what do you think the airlines, airports and other stakeholders will be arguing for? Will this be the next price re-regulation? PH: We haven’t formally been asked to look at it, but I’ve heard that we’re getting it. There is a sort of tradition of us having another look at this on a reasonably regular basis. I have a conflict of interest in that I worked on the privatisation of all airports except Sydney Airport. I did the design of the pricing model. I regularly say to people that the privatisation of Australian airports is the privatisation where: ►► no-one went broke ►► the Government got 10 times more than it expected for the assets ►► we have not spent a dollar on anything other than extending the runway at Canberra Airport for George W. Bush’s 747.

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So, it’s been a very successful privatisation. Airline prices have continued to fall, new systems have been put in place, and new terminals have been built, with the exception of Perth. Other than Perth, investments that have occurred on airports have improved the consumer experience, and, on balance, it looks pretty damn good to me, but I’m biased. We do regularly get asked which airport operators are monopolies, being able to exploit consumers via their pricing strategies, and the Australian Competition and Consumer Commission (ACCC) is particularly interested in this question. In my mind, there two classes of consumer at airports. The first are airlines ranging from Qantas down to little regional airlines. Larger airlines have a particular kind of niche in the negotiation market envisaged for them in the original privatisation model, and, generally speaking, they probably wouldn’t want it. Some smaller airlines are quite exposed to the pricing issues that are pre-determined by the larger airlines. This can make it more difficult for smaller airlines to accept, especially in regional areas of Australia, if you are the only airline serving a Councilrun airport. In essence, even though the model of negotiating looks like it’s a relatively successful one, there are wrinkles worth examining for that class of consumer. The second class of consumer people worry about is the general public. The question often asked is, ‘Are we paying more than we should to go to the airport or to use the airport?’ No-one makes you buy the stuff you walk past when you go to the airport. If the prices are high, you don’t have to buy anything. There’s an alternative for you: if you want to buy cheaper, buy things before or after you have left the airport. That brings you back to parking. I think that this is where the Productivity Commission could provide a value-add. I’d like to go back and look at what it costs to park anywhere else. It’s not whether the airport pricing’s high, but rather what the price relative to parking elsewhere with an equivalent level of convenience is. It’s not a question of simply saying, ‘The airport makes a profit out of parking, isn’t it outrageous?’ Because, when people are incentivised to develop a service and make a profit out of it, they provide a better service over time. That’s what we get with a market economy. Simply because an airport makes a profit out of the parking is not a bad thing per se. The question should be, is the pricing structure indicative of the fact that you have alternatives? The best way to look into that is to look for a counterfactual. A counterfactual will find an equivalent form of parking and see what they’re charging for that. If it looks acceptable, maybe that’s where the benchmark is. If it doesn’t look acceptable, maybe there’s a problem. To tackle this issue, you need to proceed logically and analytically, and that’s what we would probably do. BL: Thank you very much. What would you all like to see political agreement on in infrastructure?

Restoring Australia’s productivity growth – panel discussion

MC: It would be really great to get bipartisan agreement on the fact that freight is strategically important to the economy. This includes having conversations with the public to broaden public awareness of the importance of freight, supply chains and ports to the national economy. And flowing from that, the regulation needs to support that objective – everything from planning systems through to funding mechanisms and prioritisation. BL: So, really establishing a freight market is what you’re really saying? MC: Absolutely. I also think that they should agree to fund the Port Botany rail line duplication. Those would be my two picks. BL: Stephanie, any points of agreement and any pet projects that connect to your house? They’re all welcome. SF: Australia being open for business should be bipartisan. Politicians on both sides regularly say it in passing, but I would like to see it top of the agenda. Australians should be very confident about our future, but we should not be complacent. The second thing I’d like to see bipartisan agreement on is around clarity with FDI coming into Australia. Most foreign investors are aware that there’ll be some investments that are not open to them and others that are, but they need clarity around what these are. They don’t want to be spending a lot of time preparing for certain projects and finding out later that they cannot invest. So, I think we need early clarification around what’s on the agenda and what’s off the agenda, that needs to be bipartisan. BL: Any pet projects? SF: No pet projects in particular. BL: Peter, you hate pet projects, so what would you like to see agreement on? PH: No pet projects is number one. Firstly, I hope we can move away from the culture where a project is labelled as a ‘bad project’ just because the other side of politics came up with it. It’s a bad project if it’s poorly planned, allocation is bad, there’s no pricing structure involved, and there is the extraction of large amounts of rent from one user group to another user group without any compensating benefits. There are a thousand reasons a project could be labelled a ‘bad project’, but it’s not because it came up under one political party or the other. The National Broadband Network (NBN) is an example of this. Its label as a good or bad project is entirely dependent on the politics of the person. In New York, Verizon built an equivalent of the NBN around New York. It wasn’t controversial, and in three years it was finished. New Zealand has done its own version of the NBN, and it wasn’t controversial. It did involve government intervention, but nevertheless it’s a good outcome. The idea that we would invest heavily in fibre for the purpose of data movement to support an economy… of course we would do that, but the question is how, and how effectively

Peter Harris AO

can we plan to do it and manage the right forms of criticism? However, the debate around the NBN is labelled as good or bad depending on your politics. The second area is road pricing, and it doesn’t mean you get the sharp stick out … BL: There’s going to be a flashing sign down here that says, ‘Save Road Pricing’. PH: At a recent forum at the University of Sydney, I surprised a group of academics by telling them, ‘I don’t think congestion pricing is the right model for you when you talk about road pricing’. Do not think the first step for road pricing is congestion pricing. Congestion pricing is not a bad thing, but the greatest benefits that will come from an effective road pricing structure are the shifts in the allocation. That is, that you fund projects that users are willing to pay for. This is a statement of the bleeding obvious, but it is not currently happening – users don’t get a say. The road pricing structure in our 2014 inquiry into Public Infrastructure was one that involved users having a direct say in infrastructure. You might ask, ‘Well, how did that occur?’ And we’ve said, ‘Well it’s pretty simple – we’ve got this thing called the National Roads and Motorists Association’. They’re quite capable entities and they could be involved in the decisionmaking, but so could a heavy-vehicle users group. We increasingly expect them to pay for road use, so it seems logical to involve them first in the allocation process. Our 2014 report found that 70 or 80 per cent of the potential benefits of a different pricing system lie in the selection of the right projects. It’s about allocation. We know that this reform will come about because Treasurers need the revenue, but road pricing reform is about allocation. Getting allocation right will mean we get the right selection of projects.

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Restoring Australia’s productivity growth – panel discussion

Marika Calfas – Chief Executive Officer, NSW Ports Marika Calfas is the Chief Executive Officer of NSW Ports, the private sector organisation responsible for managing the ports of Botany and Kembla, and the intermodal terminals at Cooks River and Enfield. Ms Calfas has over 16 years’ experience in the port sector across a broad range of portfolio areas, and was appointed as the Chief Executive Officer of NSW Ports in December 2015. Ms Calfas commenced with NSW Ports at its inception in June 2013, and led the development of the NSW Ports Long-term Master Plan, released in October 2015. Prior to NSW Ports, Ms Calfas held senior positions at Sydney Ports Corporation and Sinclair Knight Merz. At Sydney Ports, she was an integral part of the delivery of the $1 billion Port Botany Expansion development project. Ms Calfas is a Board member of Ports Australia; Australian Logistics Council; and PIANC Australia (the International Waterborne Industry Association). She is also Australia’s representative to PIANC’s International Environmental Commission. Ms Calfas is also a member of the Infrastructure Partnerships Australia’s National Advisory Board. Ms Calfas has been appointed to the Expert Panel by the Commonwealth Minister for Infrastructure and Transport, and is advising the Inquiry into the National Freight and Supply Chain Strategy Priorities. Ms Calfas has a degree in Environmental Engineering, together with a Master of Engineering Management and Masters of Environmental Law, and is a Chartered Professional Engineer with Engineers Australia.

Dr Stephanie Fahey – Chief Executive Officer, Austrade Dr Stephanie Fahey is the Chief Executive Officer of Austrade, the Australian Government agency responsible for promoting trade, investment and international education, and tourism policy, programs and research. Dr Fahey has over 30 years’ experience both as an academic and as an executive, working in Australia and overseas. Previously, she was EY’s lead partner for education in the Oceania region, Deputy Vice Chancellor (Global Engagement) at Monash University, and Director of the University of Sydney’s Research Institute for Asia and the Pacific. Dr Fahey brings an international perspective to her work and a wealth of experience across business and academia. Austrade’s first female chief executive, Dr Fahey has also served on the Australia China Business Council, the Australia China Council, the New South Wales International Education Advisory Board, the European Australian Business Council, the Board of Canberra Institute of Technology, the Foreign Affairs Council and the Australia Korean Foundation. Dr Fahey holds a PhD from the Australian National University and a Bachelor’s degree with honours from the University of Sydney. She speaks Melanesian Pidgin. She was inducted as a Fellow of the Australian Institute of Company Directors in 2012.

Peter Harris AO – Chairman, Productivity Commission Peter Harris is Chairman of the Productivity Commission. Mr Harris has previously served as Secretary of the Commonwealth Department of Broadband, Communications and the Digital Economy, and the Victorian Government agencies responsible for sustainability and the environment; primary industries; and public transport. Mr Harris has worked for the Ansett-Air New Zealand aviation group and as a consultant on transport policy. He has also worked in Canada on exchange with the Privy Council Office (1993–1994). His career with the government started in 1976 with the Department of Overseas Trade and included periods with the treasury, finance, the Prime Minister’s Department and transport. He worked for two years in the Prime Minister’s office on secondment from the Prime Minister’s Department as a member of then–Prime Minister Bob Hawke’s personal staff. In 2013, he was made an Officer of the Order of Australia ‘for distinguished service to public administration through leadership and policy reform roles in the areas of telecommunications, the environment, primary industry and transport’. Mr Harris has a degree in Economics from the University of Queensland.

Brendan Lyon – Chief Executive Officer, Infrastructure Partnerships Australia Brendan Lyon is the Chief Executive of Infrastructure Partnerships Australia (IPA), the peak infrastructure policy partnership between Australia’s Commonwealth and state governments, and the business sector. Joining IPA on its formation 11 years ago, Mr Lyon initially led the policy and research team, before being appointed Chief Execuive Officer in early 2008. Through strong, evidence-based public policy, good research and strong relationships across the business, media and government sectors, IPA has developed into a respected and trusted voice on economic and social infrastructure policy. Mr Lyon also serves on a range of boards, committees and government inquiries; is a Member of the Australian Institute of Company Directors; and holds a Masters of Business Administration with Distinction. In 2013, Mr Lyon was appointed an Honorary Associate Professor at the Sydney Business School.

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BE A JOURNEY MAKER Mark, Senior Project Manager, Business Development Fifteen years ago, international experience was on Mark’s wish list. Four countries later with Transdev, it still is. Transdev is a public transport company that puts its people and customers first. Whatever your role is within our company, you know you’re a valued member of an amazing network that safely delivers millions of people every day. If you’re dedicated, proud, and passionate in everything you do, we’d love to hear from you.

transdev.com.au/careers

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Driving public transport into a brighter future Transdev’s innovations in on-demand, autonomous bus services are solving key transport problems. Collaboration, says Lalande, is critical because governments worldwide are under pressure to sustain public transport investment. ‘Cities need technology-driven, integrated multimodal transport solutions that maximise every possible efficiency. Smarter use of buses, for example, can solve several problems and take significant cost out of public transit systems.’ Transdev’s trial of on-demand bus services in Sydney’s Manly and Rose Bay suburbs is an example. In conjunction with Transport for NSW, Transdev is launching a pilot program that, if successful, will run in four tranches over two years.

René Lalande, Chief Executive Officer, Transdev Australasia

Transdev Australasia is helping shape the future of public transport with groundbreaking, cost-effective solutions for communities and governments. In an Australian first, the transport innovator, in November 2017, launched a trial of on-demand bus services in two Sydney suburbs. Transdev also sees potential for autonomous buses, and bus rapid-transit services that are an alternative to light rail in some cities. ‘Transdev is re-imagining public transport,’ says Chief Executive Officer René Lalande. ‘As urban populations grow, we need new thinking for longstanding transport problems. We need affordable transport solutions that energise cities by making them more accessible for everyone.’

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Transdev has developed an online interface that allows residents to signal if they need a shuttle bus to take them to Manly or Rose Bay wharves. A software algorithm analyses the data to optimise the most efficient route to pick up passengers. These new bus services have outstanding potential. For consumers, on-demand buses are more convenient than fixed-route ones, and there is extra incentive to use public transport rather than drive to a wharf and park nearby. For governments, on-demand bus services could replace some fixed-route services that run when demand is low and waste resources. ‘On-demand buses help solve the “last mile” transport problem for consumers,’ says Lalande. ‘Too many consumers are forced to drive all or part of their journey because there is no public transport solution between

their house and a train or ferry. Imagine ordering a public shuttle bus through a smartphone app, like consumers order a car through Uber.’ Transdev has successfully introduced on-demand bus services in Europe and the United States. The results showed on-demand buses drove fewer kilometres, and thus consumed less fuel and had fewer emissions than fixed-route buses. Patronage of on-demand bus services increased because they were a more convenient option than using cars. Lalande says modern urban transportation systems need a mix of fixed-route and on-demand bus services. ‘It makes no sense having buses go around and around on fixed routes when they’re half empty. Or having buses that cannot pick someone up at their doorstep. If six people need a public shuttle bus to get somewhere, they should be able to order it.’

Pioneering work Transdev is launching an Australian roadshow for its autonomous shuttles capabilities in 2018 as part of a global initiative. The company wants to demonstrate driverless shuttles that allow for six seated and six standing passengers, pending government approval. Transdev is a global leader in autonomous transport: its driverless vehicles have transported more than 2.5 million passengers across 350,000 kilometres since 2005. In 2016, Transdev began operating autonomous vehicles at

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France’s EDF Civaux Nuclear Power Plant – the world’s first commercial contract for this kind of service. In February 2017, Transdev and Renault–Nissan signed a contract to develop on-demand, driverless, electric vehicle fleet technologies. Lalande says buses have a key role in autonomous transport. ‘Most talk so far has focused on autonomous cars; however, if we don’t pay sufficient attention to the challenges of autonomous cars, we could worsen traffic congestion by having more cars do more journeys in cities. Larger shuttles are ideally suited to autonomous driving because most of them operate on a fixed route and are more predictable than cars.’

how many cities operate into the future. The systems operate as an express bus way, allowing for a high-frequency, highcapacity service offering to customers. ‘We firmly believe that bus rapid-transit systems can be a cost-effective, attractive part of the future transport mix in Australian cities,’ says Lalande. Bus rapid-transit technology is timely as more state and territory governments, and regional cities, invest billions of dollars in light rail infastructure. ‘Light rail has an important role in modern urban transit systems,’ says Lalande. ‘But in certain circumstances, bus rapid-transit systems can achieve a similar result at a fraction of the investment needed for light rail and be implemented much faster to address traffic congestion.’

Autonomous shuttles save significant labour cost, enabling lower bus fares that encourage higher patronage and less use of cars. ‘Again, it’s about maximising every dollar of public investment in transit systems,’ says Lalande. ‘Transdev has demonstrated overseas that autonomous shuttles are cost-effective and reliable. We can adapt our autonomous and on-demand bus technologies to Australian conditions and demonstrate their safety.’

Strong foundations for transport innovation

Transdev’s bus rapid-transit technology is another emerging option for public transit authorities. These systems involve bus shuttles, usually joined together, that have a dedicated lane. The system broadly operates like light rail, with up to a third of light rail passenger capacity.

Transdev operates key bus services in Brisbane, Melbourne, Perth and Sydney; ferry services in Brisbane and Sydney; and Sydney’s light rail system since 1998. It also operates rail services in Auckland and Wellington.

Transdev has pioneered bus rapidtransit services in Bogotá in Colombia and the French cities of Rouen and Nantes. Transdev sees these services shaping

As the largest provider of multimodal transit systems in Australasia, Transdev is uniquely positioned to lead transport projects. Transdev Australasia is responsible for more than 145 million customer journeys each year across seven cities in Australia and New Zealand. The business has more than 5,700 employees in its trans-Tasman operations.

Lalande says Transdev offers Australian clients the best of both words. ‘We have a proud history in this market and a large multimodal operation, so we deeply understand local conditions and the transport needs of communities. We

are also part of a leading multinational transport company that operates in 19 countries across five continents. We’re able to take the best transport innovations worldwide and tailor them to Australia.’ Transdev’s passion for public transport is reflected in its PACE concept: personalised, autonomous, connected and electric transport for all. ‘We see a future where consumers will use public transport when they need it, not wait for it to show up,’ says Lalande. ‘A future where autonomous vehicles seamlessly connect across transport modes to create stronger outcomes for communities, governments and the environment.’ Lalande says great public transport systems connect people to communities. ‘Nobody wants sprawling outer suburbs in large cities with poor transport options. Or commuters who have no option but to drive long distances each day for work and risk becoming disconnected from their community.’ Governments, says Lalande, have the will to innovative public transit systems, but cost is the recurring problem. ‘Governments worldwide can’t just keep spending billions of dollars to retrofit transit systems in major cities. They need technology-led solutions that solve macro and micro transport challenges and create a more efficient mix of public transit options.’ Lalande says Transdev is thinking differently about what public transport looks like in the digital economy. ‘We’re incredibly passionate about the future of transport and the benefits for cities and communities. That future is knocking on the door. We have to embrace it.’ ♦ To learn more about Transdev Australasia, visit www.transdev.com.au.

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companyfocus

Passionate about water Australia’s leading private water utility, TRILITY, is continuing its nationwide growth, with its latest successes ranging from the far south to the far northern tip of the country. Securing such diverse work in such varied locations is a clear testament to the company’s impressive capabilities. Operating and maintaining more than 41 plants and schemes, as well as hundreds of kilometres of irrigation pipeline networks across the country, and Australia’s largest biosolids facility, TRILITY is responsible for assets that provide water to millions of Australians in both urban and regional areas. Led by Managing Director Francois Gouws, TRILITY is also working to transform ageing water infrastructure, and leading the way in water recycling initiatives Australia-wide.

The new Launceston facility

TRILITY has recently been awarded the contract for the installation of eight water treatment plants, costing around $13 million. This contract forms part of TasWater’s Regional Towns Water Supply Program. The work will be carried out in conjunction with Hydramet, a member of the TRILITY Group, which recently opened a new office and warehouse facility in Launceston, significantly increasing its presence there and reinforcing its commitment to the Tasmanian water sector. Hydramet will manufacture the treatment plants in module form at its Launceston base, and then install them at Bronte Park, Conara, Cornwall, Gladstone, Herrick, Mathinna, Rossarden and Wayatinah. Another recent success for TRILITY is the signing of a three-year-plus

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contract extension to provide services to five Indigenous communities, located approximately 1,000 kilometres north of Cairns at the northern tip of Cape York, known as the Northern Area Peninsula. The work, which is usually contracted every 12 months, involves operating and maintaining a raw water collection and transfer station, a membrane water treatment plant and a treated water distribution system. Some 80 per cent of TRILITY staff working on the project are local, representing an important skilled employment and training opportunity. Established in 1991, TRILITY is now working with statutory authorities and companies around Australia to upgrade and manage critical water assets, design and construct water infrastructure, and finance and own water assets and projects.

‘At TRILITY, we’re passionate about what we do – helping to protect and direct our precious water resources for Australia’s economic and environmental future,’ says Gouws. An Australian-run company with strong international shareholders, TRILITY brings with it outstanding global expertise and a wealth of local knowledge, developed over two decades. With some of its contracts stretching back more than 20 years, TRILITY maintains strong relationships with water authorities, government departments and industry bodies. Indeed, this capacity to successfully partner with government and industry is reflected in its projects: 24 water treatment and desalination plants; 15 wastewater treatment and re-use plants/schemes; two irrigation schemes; and Australia’s largest thermal biosolids facility at Geelong, Victoria. In South East Queensland, TRILITY was selected to design, build,

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operate and maintain the Redcliffe Sewage Treatment Plant upgrade. In Western Australia, TRILITY is part of the Helena Water consortium, which delivered the $300-million Mundaring Water Treatment Plant.

River Murray and the Virginia pipeline

workforce that is very passionate

scheme, providing irrigation services to

about water. We have invested heavily

the communities north of Adelaide.

in staff and systems, and a core part of

Across regional Victoria, TRILITY operates various water and wastewater treatment plants, along with the state’s largest irrigation scheme and biosolids facility.

supplying essential services to the

In South Australia, it operates the state’s international award-winning desalination plant with its joint venture partner. It also operates the many water treatment facilities that service more than 90 communities along the

TRILITY also has a footprint in New Zealand, where it plays an essential

my role is to maintain and enhance our exceptional culture.

role in protecting the environment, while

‘We also pride ourselves on being innovative, nimble and adaptable,’

community it serves.

says Gouws.

For everyone at TRILITY, ongoing success is their driving force.

‘Water is a vital resource, and apart from that, the only certainty is

‘Our strategy is working – TRILITY

change. Communities and industries

has met every financial target set by its

change, and even the climate

shareholders over the past five years,

changes, so at TRILITY, we’re

and continues to win new contracts and find efficiency gains,’ says Gouws. ‘TRILITY has an incredible

determined to keep adapting so we can continue to make an important

contribution to Australia’s future.’ ♦

Water is our business Northern Peninsula Area Operations and Maintenance (QLD)

Australia

Redcliffe Sewage Treatment Plant (QLD)

Administration offices Asset Management (AM) and Operations and Maintenance (O&M)

Brisbane office

Design and Construction (D&C) Design and Construction (D&C) and Operations and Maintenance (O&M)

Mangawhai Water Reclamation Scheme (NTL)

Operations and Maintenance (O&M) Hydramet Services

Perth office Adelaide office 29

ce Melbourne office Riverland Water Project (SA)

Macarthur Water Treatment Plant (NSW)

Mundaring Water Treatment Project (WA)

New Z Zealand Barwon Biosolids (VIC)

TasWater Regional Towns Water Supply Program (TAS)

www.trility.com.au

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John Pickhaver

John Pickhaver, Co-Head, Australia and New Zealand, Macquarie Capital Key points: • • •

The global economic outlook is improving. Australia enjoys good fundamentals, but sees low consumption, growing living and utility costs, and other infrastructure and economic pressures. The infrastructure market will be impacted by changes in technologies and demographics across all sectors – including the rise of the ‘millennial’.

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John Pickhaver

I will provide an overview of the global economic outlook, and an overview of the Australian economy, before looking at how the Australian economy is providing opportunities to invest in infrastructure. We will look at market activity and draw together some themes from an infrastructure perspective. Firstly, how are we feeling about the world? The world is feeling pretty good. The global volatility index is well below its long-term average, notwithstanding some recent small spikes due to the North Korea–Trump rhetoric, and the Barcelona terrorist attacks. This is reinforced by the fact that, over the last five years in particular, the global economy has continued to grow. We have had consistent global Gross Domestic Product (GDP) growth of 3.5 per cent, which is forecast to continue. This is in line with the long-term global GDP growth since 1980. A growing economy is a good thing from an infrastructure perspective. As our economies grow, we need more infrastructure, and we are growing at a rate that supports continued infrastructure investment. One of the drivers is population growth. Australia has had consistent population growth of about 1.5 per cent, which is above the advanced economy average (about 0.5 per cent), and the emerging and developing economy average (about 1.3 per cent). The other key driver is that globally, both the manufacturing and services sectors are expanding. This is true across the major economies, including the United States, China, the European Union and Australia. Additionally, the cost of capital is at an all-time low. Although we are expecting a slight increase in the 10-year government bond yields, after having already witnessed a slight increase in the US Federal Funds Rate, the increases are minimal to date.

What about Australia’s key trading partners? In the United States, unemployment is at a 16-year low. Employee confidence has returned to historic highs, indicating a tightening in the labour market. Although the United States’s housing market is still significantly below the long-term average, it has started to pick up. In China, we are seeing growth slow down; increasingly, it is being maintained at much more sustainable levels because growth is driven by consumption, rather than government investment. The percentage of global trade out of China has overtaken the United States, Germany and Japan, which emphasises China’s importance on the global stage, both economically and geopolitically. China is also moving to a more service-based economy. Using education as a proxy indicator, the percentage of college graduates as a proportion of the population is increasing significantly – a continuing trend since the 1980s and 1990s. This is also reflected in the manufacturing and construction components of GDP, which are coming down as services become the key drivers in China’s economy. Services now

contribute more than 50 per cent towards China’s GDP. It is also worth noting that, while manufacturing has dropped off, China has maintained its infrastructure spend over the last five years. The perception is that Europe is in a sluggish, slow-growth situation, but it is doing alright. Growth is around two per cent, which is in line with expectations from the European economy. Inflation is now tracking at about two per cent, having emerged from a deflationary period, and this means more consumption and more growth.

What does that mean from an infrastructure point of view globally? This is a trend that we will explore as we move to examine Australia. Australia compares well globally in terms of the percentage of GDP spent on infrastructure. We spend about 3.5 per cent of GDP on infrastructure, which is well above the global average, as well as that of Germany, the United Kingdom and the United States. Growth in the Australian economy is trending well, with the latest GDP figures quite positive. Forecasts from Macquarie research put GDP growth in the 2.5 to 3.5 per cent range going forward, with inflation safely in the two to three per cent band over the same period. The key challenge facing the Australian economy is consumption, including household attitudes towards consumption. There are a number of reasons for this. Firstly, disposable income, and therefore expenditure, is tracking down. This is due to what people are feeling day to day, including an increased cost of living as a result of higher housing and energy prices. We all know that housing prices, particularly in Sydney and Melbourne, have increased dramatically. Energy prices have traditionally tracked the consumer price index, but have begun to diverge from this as a result of big investment in the networks businesses, increasing the cost of distribution, transmission and also recent increases in wholesale energy prices. The second reason for low consumption is that household debt remains historically high. The big drivers of demand for increased investment in infrastructure still remain: 1.5 per cent population growth has been very consistent and will continue. There will be an additional 40 million people in Australia by 2060, with two-thirds of this increase to occur in capital cities. In terms of internal net migration, South East Queensland and Victoria are growing, largely at the expense of Western Australia, South Australia and the Northern Territory. We are the most urbanised nation on Earth, and that trend is expected to continue. Moving now to what is happening in the markets. We have seen construction activity trending down since 2012 as the mining boom eased off. Urban projects in New South Wales and Victoria are now the drivers of construction activity. Following the resources boom, construction activity has been largely

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John Pickhaver

driven by transport infrastructure and increasingly energy and utilities, and these areas are expected to remain the areas with the most investment opportunities over the forecast period.

How is infrastructure spending divided between public and private spending? Private infrastructure spending was the key driver through the resources boom, and government spending has been flat over the last few years. This has started to increase now, mainly driven by the New South Wales and Victorian governments, both of which have forecast infrastructure expenditure of more than $70 billion over the next four years. At the same time, Federal Government infrastructure expenditure has been largely stable, and while there are a number of high-profile new national projects, spending declines if you look over the forward estimates. In terms of the private sector, investment in capital expenditure is still running below long-term averages, which is a global trend. Looking at industrial companies’ ratio of capital expenditure (capex) to sales, it remains below long-term averages and continues to trend down. Companies do not have the same confidence levels to invest as they did in the early 2000s. This is despite the fact that capital is readily available. Our superannuation capital balance continues to grow, and unspent capital allocated to infrastructure continues to rise. The recent reporting season has shown us that the performance of industrial, transport and utilities companies was a highlight, relative to telecommunications and finance. Energy and industrials companies (including transport) saw 5.0 per cent and 4.4 per cent increases in share prices, respectively, through the reporting period. Utilities share prices grew 2.1 per cent, while telecommunications and financials share prices declined by 10.8 per cent and 3.1 per cent, respectively. One of the big themes to come out of the reporting season was

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that the outlook for capex and infrastructure is very positive. Commodity companies are also starting to deliver. As noted earlier, consumer spending is, however, constraining growth at the retail level. In mining, there has been an increase in profitability, but spending on capex has not yet increased; rather, profits are either being held, or returned to shareholders. The sentiment for infrastructure and resources-exposed companies has continued to be very positive over the past year and a half. It is worth noting that transport infrastructure and utilities have outperformed the ASX 200 over the past five years.

Infrastructure outlook In terms of the infrastructure outlook, we have drawn out four key themes that Macquarie believes will drive infrastructure investment over the medium term. The four themes are: ►► energy and renewables ►► city building ►► millennials ►► government and private sector collaboration.

Energy and renewables Energy is very topical at the moment, following an increase in energy prices and the resulting political debate. There is highlighted political discussion, and there is a lot of coverage in the media. Fundamentally, Macquarie is seeing a big investment opportunity in the energy space, resulting from the retirement of coal-fired generation and cost reductions in renewable generation, which means that the role of renewables in the market continues to increase. By 2036, renewables are estimated to provide 60 per cent of market capacity, with coal estimated to drop from its current 48 per cent share to 12 per cent. This means that there is a big investment opportunity in renewables and supporting infrastructure, such as firming capacity, storage and additional transmission. There is also

John Pickhaver

an opportunity for businesses to involve themselves in the regulatory reform process currently underway.

City building City building continues to be the focus following the mining boom. Health expenditure is a key driver here, as annual healthcare expenditure is expected to double as a portion of GDP by 2060, with aged care expenditure expected to triple. Education investment is also critical to support the growing population, alongside housing. This presents a real opportunity to combine different types of infrastructure. In transport, we are seeing projects being combined with commercial and residential developments, and health precincts. In this type of environment, there is an increased role for planning in order to get each of the different infrastructure opportunities right.

Millennials Millennials will make up 75 per cent of the population by 2025, and will earn and spend $2 out of every $3. The trends that we are seeing in their spending patterns will drive infrastructure investment. Millennials are much more focused on renewable and green generation, and are willing to pay more for it. They support increased public transport, and increasingly see transport as a service. Millennials are also happier to rent, as opposed to owning property. More importantly, the use of digital and technology applications has increased dramatically. In terms of infrastructure, this means that there needs to be more emphasis placed on technology-enabled service provisions as part of our infrastructure spend over the medium term.

Opportunities for businesses to become involved in the reform process The fourth and final theme is the relationship between business and government. Currently, we have some states facing big budget constraints, while others have ambitious infrastructure targets, such as those in New South Wales and Victoria. As reform and regulatory changes occur – as is happening in the energy market now – there is an increased need and opportunity for businesses to engage with government. As a sector, we should encourage partnerships where business is able to be involved in the regulatory process, participate in reviews, and provide ideas and solutions to government.

Businesses should be more engaged with the stakeholder side, as well. Businesses have a role in publicly advocating for projects, but also more broadly for reform. Unsolicited proposals are a key part of this, and they are becoming increasingly common. The key message resonating from this theme is that businesses should continue to engage with government and the public sphere in relation to infrastructure to initiate reform and to support muchneeded infrastructure projects.

John Pickhaver – Co-Head, Australia and New Zealand, Macquarie Capital John Pickhaver is the Co-Head of Macquarie Capital for Australia and New Zealand, and has 17 years of experience in the finance and infrastructure sectors, both as a civil engineer and in infrastructure finance. While at Macquarie, Mr Pickhaver has advised on corporate and project financings, mergers and acquisitions, and arranging debt and equity for a variety of transactions. Mr Pickhaver has also provided strategic financial advice to corporates in relation to capital structure reviews, and to governments in relation to projects, assets and financing. Previously, Mr Pickhaver worked for a number of years as a civil engineer in Australia on infrastructure projects, before completing his doctorate at Oxford University in civil engineering, and subsequently his Master of Applied Finance.

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Are we harnessing the energy transition? By Craig Shortus, Head of Utilities & Infrastructure Australia, ANZ; and Tsen Wong, Director, Utilities & Infrastructure, ANZ. Among the consequences of the storm that cut power in Victoria late last year was Alcoa’s closure of one of two potlines at its vast Portland smelter. Although the disruption lasted just a few hours, it took months to get the line up and running again. The outage was a stark reminder that we need to act now to secure Australia’s energy future.

Source: AEMO, ANZ

1999 2002 2005 2008 2011 2014 2017 As reliability has declined, electricity prices have soared. Earlier this year, TAS VIC NSW QLD SA some businesses faced price hikes of Some businesses faced price hikes of around 20% this year as reliability declines around 20 per cent. Source: AEMO The index assesses each country The recent Finkel review tackles These two elements – cost and based on three factors: how well its these issues with a multi-decade blueprint the reliability of supply – lie at the energy architecture meshes with its focusing on four areas: increased heart of the challenge. Also, there is economic growth; the impact of its security, future reliability, rewarding sustainability, with corporates expected energy supply and consumption on consumers and lower emissions. to consider their carbon footprint the environment; and the extent to The paper foresees a reduced role and how they source energy. The which the energy supply is accessible for coal by 2050, and a vast increase challenges in getting this right are and diversified. It is the second of in the use of renewables – from 28 per significant; larger still are the costs of these factors in which Australia fares cent in 2020 to either 73 per cent under getting it wrong. particularly poorly. a clean energy target (CET) policy, or

In transition

Australia’s ongoing energy transition will eventually see zero-carbon renewables, such as solar, wind and hydro, provide the bulk of its energy requirements. Gas has a vital role to play as a bridge – but the rapid rise in gas prices coinciding with the shutting of nearly 15 per cent of Australia’s ageing coal-fired power stations recently has undermined that, with more to come (for example, the Liddell Power Station in New South Wales). An inconsistent approach, and lack of consensus on the way forward between federal and state governments, has complicated efforts.

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70 per cent under an emissions intensity scheme (EIS). As the paper points out, wind power is now cheaper than coal, and solar is closing fast.

Firmly mid table When it comes to energy development, dozens of countries are ahead: Australia ranks in 53rd place in the World Economic Forum’s 2017 Global Energy Architecture Performance Index, just behind the United States and Israel. Switzerland, Norway, Sweden, Denmark and France lead the way; Sweden’s investment in renewables is helping it to reach its target of 50 per cent of consumption from renewable energy ahead of schedule.

The Australian Government’s acceptance of 49 of the Finkel review’s 50 recommendations is a welcome step to building a more secure, reliable and lower-cost energy future. But without the 50th recommendation – the clean energy target – this will not provide the clear direction and investment certainty required to ensure an orderly transition.

Self-reliance Improving Australia’s energy mix will require investment in new energy assets. Uncertainty has seen some companies implement their own solutions. The road to self-reliance is not straightforward, but the benefits – reduced volatility and operational

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risk, and improved sustainability and reputation – are worth the effort. There are three common solutions: embedded networks; commercial and industrial solar; and corporate powerpurchasing agreements (PPAs). Among the first group are embedded networks that use a trigeneration plant: these take in gas, and simultaneously output power, heating and cooling. Melbourne Airport installed an eight-megawatt tri-generation facility in 2014, for example. Sydney Town Hall began running a 1.4-megawatt tri-generation system last year to manage peak demands, and will sell excess power to the grid. Secondly, commercial or industrial solar allows a business to cut its operating expenditure and boost supply reliability, particularly when combined with storage and an energy-management system. Examples include Sydney’s International Convention Centre, which installed a 520-kilowatt solar array on its rooftop that will provide around five per cent of its energy requirements. Thirdly, a number of larger energy users have explored using corporate PPAs to underwrite the supply of electricity. Corporate PPAs – in which a company either buys renewable energy from an independent generator, or invests in energy generation itself – have become increasingly popular. The trend is led by the United States, where Facebook, Amazon and Alphabet were among the first entrants. It’s important to understand that corporate PPAs are complex agreements and require a far longerterm commitment, typically a decade and ideally longer, to underwrite a

project. Yet, they are finding traction in Australia as organisations look to ensure that their infrastructure energy needs become more self-reliant. In May, for instance, Telstra signed a PPA with RES Australia to buy the output of the latter’s 70-megawatt solar farm that is being built in Queensland. Also in May, Sun Metals began work on a 125-megawatt solar farm to supply energy to its zinc operation outside Townsville. And earlier this month, Newcrest Mining said rising electricity prices meant it was assessing whether to install a solar farm at its Cadia mine in New South Wales.

consider issues around supply fluctuation – also known as ‘firming’ – that are inevitable in a variable energy generator.

Decentralising energy assets These changes in organisational (and indeed in household) self-reliance fit a broader pattern in the energy sector: the decentralisation of energy assets. Take solar PVs: a decade ago Australia had just nine megawatts of installed capacity; today it stands at a little over 6,200 megawatts. There is a movement towards sustainability in social infrastructure, too, as we’ve seen in hospitals, schools,

Universities are going down the selfreliance path, too: Monash University, which recently put out a request for a proposal for an annual 55-gigawatt-hours renewable project, expects all its energy needs will be met by renewables by 2030.

prisons and low-cost housing. The best

Corporate PPAs allow companies to access the power and green certificate without needing to own the asset. That has benefits for the balance sheet, and it takes advantage of the supply of competitive capital seeking exposure to renewable energy assets.

increasingly sophisticated, with declining

But what works for organisations like these might not work for all. Other factors to consider include: consumption levels and the shape of that consumption over a 24-hour period; whether the organisation has an investment-grade credit rating, which is key for obtaining financing; and whether it has the internal capability to manage the risks associated with a PPA on an ongoing basis, or is at least prepared to set up such a capability.

industry, bringing changes to the existing

The complications don’t end there; for example, if a company is contracting with a renewable supplier, it also needs to

time to incorporate on-site generation assets is during the initial design and construction; this ensures lower costs and futureproofs the structures. We expect self-reliance will become battery costs and the ability to use energy-management software to trade surplus electricity from solar, creating localised trading markets. Peer-topeer trading, virtual grids and demand management will further disrupt the centralised energy model. The journey towards self-reliance – distributed generation – is only going to accelerate. We’re at a critical juncture of energy transition, and federal- and state-based policies must work and complement each other. Clearly, that’s a significant challenge, but it’s also a real opportunity for Australia. Our access to plenty of sun, wind and land should ensure that Australia plays a leading role in energy

development for the foreseeable future. ♦

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Effective use of data for making informed decisions By Ben Calder, Bid Manager; and Amy Lezala, Section Lead – Through Life Engineering, Rail & Transit, Infrastructure, SNC-Lavalin With new technology fuelling infrastructure innovation, the project pipeline of today creates exciting opportunities for us all. Looking across SNC-Lavalin’s (SNCL) sectors of infrastructure; power; oil and gas; and mining and metallurgy, it’s evident that in the digital infrastructure future, those who can smartly use their data will yield the most from these opportunities. As part of the infrastructure sector, rail and transit is a real case in point. Major rail infrastructure investment often headlines federal and state budgets. Rail ticks all the boxes: it stimulates the economy, creates jobs, improves livability and is environmentally friendly. For these very reasons, it’s unsurprising that the Federal Government has committed heavily to rail infrastructure, including $10 billion for the National Rail Program to fund urban and regional rail projects; $500 million for Victorian regional passenger rail; $1.2 billion for the Metronet rail project in Perth; and $5.3 billion for the Western Sydney Airport project, for which SNCL has delivered the rail link feasibility design. Australia’s thirst for rail is palpable, as shown by the pace of three major projects across the country: the Sydney Metro Project, the Cross River Rail project in Brisbane and the Melbourne Metro rail project. New projects provide the opportunity to implement new technology and new thinking, raising the bar in client demands and expectations. The old adages of ‘sweating the

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asset’ and getting the best ‘bang for the buck’ take on a new meaning in a world driven by rapidly changing technology. So, how do we deliver the assets today and get the best out of them tomorrow? In today’s world, making informed decisions will always come down to one thing – data. Data, especially big data, is an increasingly valued business commodity, and will undoubtedly be the backbone of future transport planning, delivery and utilisation around the world. Beyond the hype, we need to use data effectively in the context of major infrastructure development, and ensure that the asset is delivering on the investment. In the rail sector, time and time again we talk with clients whose challenges revolve around how to make practical sense of it all. These are often clients who have invested in infrastructure and embedded the data collection systems, but do not yet have the means to use it. SNCL is responding. We are helping clients around the world to interpret their data, identifying trends through analysis, and working side by side to develop meaningful business strategies and actions. We work with our clients to connect asset management and performance systems that have previously been isolated within the business. One example is our widely used SNCL-Connected, a remote conditionmonitoring service, which provides near-real-time information and trend

‘Delivery of world-class projects underpinned by data-driven strategy and action plans is key to helping our clients’ analysis of a railway asset’s health and performance. There is also our long-established IWT4 instrumented wheelset technology, which enables clients to collect vehicle and infrastructure performance data. Both examples drive engineering innovation, operational performance and reduce whole-of-life costing. For SNCL, the delivery of world-class projects underpinned by data-driven strategy and action plans is key to helping our clients make the most of the digital infrastructure future. ♦ On 3 July 2017, SNC-Lavalin officially completed a landmark agreement to acquire WS Atkins plc and started the process of joining our two companies. Together, we are now a global, fully integrated professional services and project management company – including capital investment, consulting, design, engineering, construction, operations and maintenance, and sustaining capital.

Providing data-driven strategies for the digital infrastructure future Around the world, SNC-Lavalin is working side-by-side with clients to utilise technology and deliver sustainable data-driven business solutions customised for their unique operational needs. We connect asset management and data systems to produce solutions that drive innovation, performance and efficiency across the asset life cycle.

snclavalin.com

The Hon Mark Birrell

The Hon Mark Birrell, Chairman, Infrastructure Australia

The 10 key ingredients of national infrastructure

Key points: • • •

Infrastructure is, fundamentally, about the long term. Addressing ‘megatrends’ like urbanisation, globalisation and technology change will occur through good infrastructure planning and economic regulation. The scale of change and investment means that an even deeper partnership across government and private sectors will be needed.

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The Hon Mark Birrell

Mark Birrell retired as Chairman of Infrastructure Australia in September 2017. For Partnerships, he was asked to reflect on ‘What is infrastructure all about?’ These were his observations. I believe that infrastructure will deliver transformational and lasting benefits for a nation if it displays the following 10 key ingredients.

1. Infrastructure is about… the long term Firstly, infrastructure must always be about the long term. Australia will secure deep economic and social gains from its infrastructure if we pursue integrated project and policy initiatives that are designed to last several generations. Taking a long-term view allows proactive planning and assists the marshalling of resources to meet identified infrastructure needs. A strategic outlook also allows the existing asset base to run more sustainably. The inherently long-term nature of infrastructure is inconsistent with the ‘short-termism’ that now drives public debate. Infrastructure is not about quick fixes or single issues. We therefore need to focus on helping infrastructure policy to rise above today’s 24-hour news cycle, with its superficial and negative social media commentary. Let’s encourage and reward political parties that develop long-term infrastructure visions, and that back strategic infrastructure development. It is in all of our interests that politicians and opinion-leaders look beyond short-term election cycles and instead focus on intergenerational needs. Our sector has worked hard to ensure that a long-term vision is available. The Australian Infrastructure Plan developed by Infrastructure Australia (IA), reflects a consensus position on what needs to occur in public policy and project prioritisation over the next 15 years. The Plan enjoys the backing

of Infrastructure Partnerships Australia, Engineers Australia, the Australian Water Association, the Property Council of Australia, the Australasian Rail Association, and more. When you take a long-term approach, it helps to build this valuable consensus position.

2. Infrastructure is about… quality of life Improving quality of life should be the common goal of all infrastructure development. The services that infrastructure delivers in sectors such as transport, water, energy and telecommunications, enhance the nation’s economic and social wellbeing. Negative impacts, like congestion, queues or unreliable services, damage economic performance and erode living standards. So, infrastructure needs to be planned and run to meet the direct service needs of everyday Australians and protect their quality of life. If it is, that will help with public consultation on infrastructure and new projects. This goal is vital in building community involvement and support.

3. Infrastructure is about… urbanisation Urbanisation is a ‘megatrend’ that will dominate Australia’s future, and it is arguably the most important influence on how we plan infrastructure. Currently, seven out of every 10 Australians live in cities, with population growth rates in cities now double what they are in regional areas. According to IA and the Australian Bureau of Statistics (ABS) research, Sydney, Melbourne, Brisbane and Perth will experience a 45 per cent population growth over the next 15 years – at which time Australia’s population will exceed 30 million. Population growth is a very good ‘problem’ for any nation to have, but if we are to keep Australia’s reputation for livability

Wynyard Walk. Source: CPB Contractors

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The Hon Mark Birrell

and connectivity, infrastructure services and reliability standards need to improve markedly in our largest urban centres. We should aim to spread growth more evenly across the whole country, particularly to capital cities, such as Adelaide, Hobart and Darwin. Governments can pull policy levers to influence the population trajectory. Concentrating on spreading the growth will also help to strengthen the infrastructure agenda in cities like Newcastle, Geelong, Wollongong and other regional cities.

4. Infrastructure is about… globalisation Trade growth will be the other major driver of growth (although less discussed than population growth), and it reflects the megatrend that will keep shaping Australia: globalisation. So, a clear focus on our major trade gateways and how resources, products and services are moved to international markets, is essential. It is Australia’s good fortune to be in the fastest-growing region for international trade, the Asia-Pacific. We need continued improvement of airports and seaports in order to facilitate the record-breaking expected levels of exports and imports that globalisation will bring. This requires careful planning to ensure that we improve freight links and ease choke points in our supply chains. All three levels of government will be required to work together. I look forward to the recommendations from the Federal Government’s national supply chain strategy, which must foster enhanced business performance and new employment. If we get this right, the result will be more effective logistics and the strengthening of world-class assets like the nation’s largest port, Melbourne, our largest airport, Sydney, and our great resource hubs in the Pilbara and Gladstone regions.

6. Infrastructure is about… reform Australia has implemented a range of structural reforms over the last 30 years at both federal and state levels, which has improved our economic performance and the operation of the public sector, and has strengthened regulatory settings to create national markets. If we are to address the cause of infrastructure problems, not just the symptoms, policy reform should be the centrepiece of any infrastructure debate.

Transformational projects are the fifth notable ingredient of infrastructure planning that deserves highlighting.

Reforms in areas such as telecommunications and energy have created better infrastructure in those sectors – and have directly advanced service delivery for consumers – but there now needs to be policy change over the coming decade to the transport sector.

Great role models today include Sydney’s new Metro project and the Melbourne Metro Tunnel. Ring-roads, like the M80 in Victoria, rank highly, and Sydney’s Barangaroo is another example, as it is transforming disused land into a world-scale commercial asset with integrated transport.

We need to investigate options for a land-transport market and road-pricing reform. Australia has tackled the engineering and construction challenges of major transport projects, but reform is now needed so there are incentives to provide better services to transport customers.

In Queensland, the Gold Coast Light Rail is a fine example of what can be achieved when all levels of government work together. The Light Rail improves the city by reducing congestion, connecting the expanded university and new hospital, and supporting tourism. It is also a real example of value capture.

The current system does not fund all of our road and rail needs, and is unfair, inefficient and unsustainable. With reform, Australia could move away from existing vehicle taxes and fuel excises. The concept of a national transport market with road pricing needs to be publicly investigated and debated.

In Western Australia, Perth’s City Link project is another transformational project; it removed a barrier through the central business district and enhanced public transport. We need to keep focusing on such projects – be they small or large.

7. Infrastructure is about… funding

5. Infrastructure is about… transformational projects

Similarly, corridor protection is vital to shaping Australia’s future infrastructure. New South Wales deserves credit for

preserving a corridor that will provide for a new Outer Sydney Orbital, and Victoria is protecting the planned new outer ringroad in Melbourne. Corridor protection safeguards the options for nation-building initiatives.

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Both public and private funding of infrastructure must increase if Australia is to keep pace with population and trade growth. State and federal grants must increase, coupled with strict performance-based conditions. The Reserve Bank and other experts have stated that

The Hon Mark Birrell

using taxpayer funds to initiate productivity-enhancing new infrastructure is good for the nation. Equally, facilitating private involvement in the construction or management of infrastructure is important, because public funds are scarce, and there are many other legitimate demands placed on governments for the use of public funds. If we are to secure the improvements in living standards and economic outcomes that infrastructure can provide, we have to attract more public and private investment into good infrastructure initiatives. Be it new projects, or investing in existing infrastructure through better maintenance, Australia must invest with confidence, funding projects that have been the subject of respected feasibility studies and business plans. Then we will see more of the infrastructure sought by business and the public.

8. Infrastructure is about… teamwork Teamwork is vital to building successful infrastructure, be it the multidisciplinary teams drawn together to deliver a project, or the teams that work across governments and business to provide and operate infrastructure assets and networks. The evidence of federal and state jurisdictions working collaboratively has been mixed, but is light-years ahead of where it used to be. There is greater dialogue across state borders, and notable cooperation on some major projects that require joint federal and state funding or approvals. Mutually agreed project pipelines are becoming a reality, as are shared infrastructure plans and consistent national regulations. But there is still work to be done. As to the public and private sectors working as a team, progress has been good. The appetite for partnerships is strong within governments, and the capacity of senior state public servants is very high. I urge companies and peak organisations to continue raising new development and procurement ideas with governments. If business continues role-modelling what it can do – and how it contributes to meeting the infrastructure task – we can jointly ensure that our needs are met.

9. Infrastructure is about… technology Whether it is using big data held by infrastructure agencies or companies, or sensor-driven data that improves asset performance, it is critical that we, as a sector, take full advantage of the improvements that technological advancement offers. Technological convergence is the final megatrend I want to highlight, as it will impact all infrastructure types. Automation may have the most visible impact, but improved operating systems will work behind the scenes to modernise everything from signalling and ticketing, through to metering systems that empower customers. Most important of all, technology has the real potential to make our infrastructure more sustainable and resilient. It is incumbent upon the infrastructure sector to remove barriers that can impede the adoption of new technology.

10. Infrastructure is about… optimism The vision for Australia’s infrastructure should always be ambitious and optimistic. Of the 10 ingredients I have listed here to answer the question ‘What is infrastructure all about?’, optimism is the most important. It reflects our confidence as a nation and our preparedness to address future challenges, such as population and trade growth. Being optimistic about the way we run infrastructure will see us explore new and potentially better ways of delivering and paying for infrastructure services. A crucial precondition is having governments with courage, and a private sector that is ready to step up and support them. I will conclude by mentioning a project currently underway that has all these characteristics: the Sydney Metro. It embodies engineering ambition and construction excellence, it arose from long-term capacity planning, and it uses innovative methods of delivery and operation. It’s a fine example of the public and private sectors working together to advance the public interest. The Sydney Metro project is also what good government is all about – planning well, leading confidently and investing for the next generation and beyond. We need more of these projects, and more examples of the leadership that makes great infrastructure possible.

Mark Birrell – Chairman, Infrastructure Australia Mark Birrell was the founding Chairman of Infrastructure Partnerships Australia and served in this position until 2013. He is an experienced company director with credentials spanning the private and public sectors. Currently, his roles include being the Chairman of Infrastructure Australia, Regis Healthcare Limited, the Port of Melbourne Corporation and PostSuper Pty Ltd. Mr Birrell’s previous roles have included being Chairman of Evans & Peck Limited, Deputy Chairman of the Australian Postal Corporation, and national leader of the infrastructure group at Minter Ellison Lawyers. In the 1990s, he was a Cabinet Minister and Government Leader in the Victorian Upper House, a time when he initiated and oversaw numerous successful capital works projects. Mr Birrell is a Fellow of the Australian Institute of Company Directors, holds a Bachelor of Economics and a Bachelor of Law, and has been admitted to practice as a barrister and solicitor.

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Futureproofing smart buildings The need to shift from inefficient reporting methodologies and adapt to innovative and intelligent buildings software is on the rise, and can quickly address the return on investment (ROI) challenge. For something to have ROI, it must generate value for the business; for instance, it must provide benefits in excess of its cost in a timely fashion (and, ideally, be adjusted for risk). Information is incredibly valuable. In fact, for many property organisations, the current lack of visibility and control makes the ROI of accessing better, faster and cheaper information substantially higher than any other capital investment opportunity available. Data is a strategic asset to the enterprise, making information essential and invaluable. Increasingly, businesses succeed and fail on the quality and timeliness of their information.

Emergence of smart buildings Energy management forms an integral component to smart buildings, where a recent report from ABI Research forecasts that the global facility services revenue of smart buildings will grow from $625 million in 2015 to more than $8 billion in 2021. In simple terms, smart buildings are those that feature building automation technology and smart systems that facilitate improved operational performance. New business models and opportunities are arising from managing data to empower decisionmakers through a centralised, real-time portfolio of information. Smart buildings programs unlock data; data in the right hands becomes information; information will lead to

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targeted decisions and actions; and those decisions and actions drive the ROI of the original smart buildings program. Recently, there have been huge advancements in machine learning that grant the ability to identify and correct inaccuracies. These improvements in data quality allow us to turn assumptions and ideas into actionable, testable real-world hypotheses. One of the most prevalent trends is the growing acceptance and utilisation of data analytics. Consider the implication of applying this intelligence to improve efficiency in the built environment.

NHP and Switch Automation have the solution Massive advancements already resonate in the built environment, and the velocity of change increases each year. Companies that don’t adapt by planning and implementing critical technology initiatives will fall behind, and the gap between success and failure will continue to widen exponentially. In order to provide powerful insights to optimise your building performance, NHP has partnered with Switch Automation to bring to market a powerful cloud-hosted energymanagement platform, InfoSyte. Users benefit from clearly visualised real-time data and often notice immediate energy savings. Our gateways collect information from thousands of building Internet of Things (IoT) sensors and synthesise

the data in our cloud-based platform. The customisable interface allows easy configuration of personal workspaces to reflect the information that’s most relevant to your plant operation. Users of InfoSyte are able to remotely identify and resolve building issues using fault detection, big data analytics, and real-time command and control. As a result, they spend less time finding problems, and more time fixing and preventing them. ♦

For more information about NHP InfoSyte, please contact your local representative or visit nhp.com.au/more/infosyte.

NHP is pleased to bring to market a powerful cloud hosted energy management platform that integrates with energy, water and gas measuring devices along with other facility systems. Users will gain valuable insights into their facility operations,

empowering them to identify process improvement opportunities and effectively manage their energy consumption resulting in significant financial savings.

has an advanced list of features including advanced analytics and in-built NABERS reporting, delivering a complete energy management solution.

Complementing NHP’s existing range of energy metering and power quality solutions, InfoSyte

For your next project visit nhp.com.au/more/infosyte

NHP ELECTRICAL ENGINEERING PRODUCTS 1300 NHP NHP | nhp.com.au |

NFUTUREBUILDINGADV_74377_08/17

NHP InfoSyte provides powerful insights to optimise your building performance

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A new South East Queensland CBD is emerging from the ground up Rarely in the 21st century does an opportunity arise to build a brand new city centre from the ground up. But a 53-hectare greenfield site at Maroochydore on Queensland’s Sunshine Coast is being transformed into a modern CBD that promises to change the region’s economic and social landscape. The Sunshine Coast Regional Council has committed to locating its primary civic presence in the core commercial precinct of the new city centre, and business hotel groups are circling the project, with several leading brands signalling interest in developing and operating a venue there. The massive project includes commercial, retail, residential and cultural precincts, with approximately 40 per cent of the site dedicated to waterways, parks and plazas. Roads, paths, waterways and a new urban square are already taking shape in the new city centre, and construction of the CBD’s first buildings will begin in 2018.

A bright outlook

Maroochydore City Centre overview Image is indicative only

Barely 100 kilometres north of Brisbane, the delivery of Maroochydore’s new city heart is being overseen by SunCentral Maroochydore Pty Ltd, a company established by the landowner, Sunshine Coast Regional Council, with an independent board. Interest in the new Maroochydore CBD has been strong since the first sod was turned in early 2016; with bulk earthworks completed, and civil construction well underway, momentum

around the project is building rapidly. SunCentral is in negotiations with global infrastructure and property development company John Holland Group over a $200-million deal involving five super-lots totalling 1.4 hectares in the new city centre. The University of the Sunshine Coast has expressed strong interest in having student accommodation and teaching facilities in the new CBD.

The new city heart will also be one of the ‘brightest’ in Australia, with its own high-speed, high-quality fibre-optic network built into the underground infrastructure, enabling an impressive range of smart city technologies. Wi-fi will operate throughout the CBD’s public realm, while smart signage, lighting, security, parking and traffic management systems will make life easier and safer for visitors, residents and workers. Pipes for Australia’s first CBDwide underground automated Continued on page 44

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Artist’s impression.

BRILLIANT FOR BUSINESS

CBD location in one of Australia’s fastest growing regions. In the heart of Queensland’s stunning Sunshine Coast and just over an hour north of Brisbane, Maroochydore is set to become a thriving hub for commerce, technology, innovation, entertainment and inner-city living. A 53-hectare central business district is being built from the ground up, less than a kilometre from world-class beaches, and 10 minutes from Australia’s newest international airport. Interest is being sought from: • Investors and developers • Future commercial and retail tenants • Tertiary education and training providers • Government and not-for-profit organisations Stage One construction is now underway. Make your move early and reap the rewards.

Expressions of Interest are now open. Visit our website for full details.

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New Maroochydore City Centre Image is indicative only

Continued from page 42

waste-collection system are being installed, making wheelie bins obsolete throughout the city centre. The Australian Communications and Media Authority is assessing an application for a broadband submarine cable into the Sunshine Coast, which would provide residents and businesses of the new CBD with reliable, high-speed digital connectivity. A report by leading social commentator Bernard Salt released earlier this year, Titled ‘The Activated City: Imagining the Sunshine Coast in 2040’, found the Sunshine Coast is set to become younger, and more educated and entrepreneurial, with key infrastructure being rolled out across the region. SunCentral Maroochydore Chief Executive Officer John Knaggs says the expansion of the Sunshine Coast Airport to allow direct flights from Asia by 2020, the growth of the University of the Sunshine Coast, plans for light rail in the region and the new Maroochydore CBD were combining to have a transformative effect. ‘The economic opportunities to arise from this infrastructure investment, along with its coastal lifestyle and connectivity,

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makes the new CBD compelling to large, national firms, as well as small businesses and entrepreneurial startups,’ Knaggs says.

A new generation Construction of the Maroochydore CBD will significantly benefit the region’s population, culture and economy. The CBD development has already generated hundreds of jobs, with expectations that it will eventually generate more than 15,000 permanent positions and provide a $4.4-billion boost to the region’s economy. In his report, Salt found that national technology, construction and professional services companies would have head offices on the Sunshine Coast by 2040, luring a wave of young families, university-educated millennials and ‘second generation’ CEOs. Knaggs says the region expected a rise in techsavvy young people, as well as baby boomers who retired to the Sunshine Coast and kicked off new start-up businesses. ‘Small and large businesses that can operate from any location will be attracted by the technology, lifestyle, cost and connectivity,’ he says.

Economy takes off The beautiful Sunshine Coast has long been renowned as a perfect place for a relaxing beach-side break, but there’s much more to the region than tourism. Business confidence is very strong, with the Sunshine Coast’s economy ranked the second best-performing noncapital city region in Queensland. Its long-term economic growth rate of 4.09 per cent (2002–15) is well above the Australian average. The coast’s population of 330,000 is expected to grow to more than 500,000 over the next 20 years, ensuring that the region will remain one of Queensland’s fastest growing for many years to come. That growth will require more infrastructure investment, and the state government has already designated the route for a passenger rail corridor to connect the new Maroochydore city centre to Brisbane. The Maroochydore city centre’s core commercial precinct is currently in the market, and other precincts will soon follow. ♦ To find out more, call SunCentral Maroochydore on 07 5452 7274 or visit maroochydore-city. com.au, where you can also register to receive regular project updates.

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Investment challenges – panel discussion

L–R: David Webster, Diana Callebaut, Michael Cummings and Michael Hanna

Investment challenges Key points: • • •

Australia has a global reputation for good investments, in a sophisticated market, with predictable regulation. Our reputation is being impacted by rapid changes to law and practice. Australia’s governments and policymakers need to be clear about the rules of the game to encourage more investment – not less.

Panellists: ►

Diana Callebaut, Head of Infrastructure, Cbus Super Fund

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Michael Cummings, Head of Infrastructure Funds, Australia and New Zealand, AMP Capital

►

Michael Hanna, Head of Infrastructure – Australia, IFM Investors

Moderator: ►

David Webster, Deputy Secretary, Commercial Division, Victorian Department of Treasury and Finance

David Webster (DW): Infrastructure investment has been one of Australia’s success stories, with Australia well regarded overseas for our market. We have a long track record of vibrant investment activity, but there seems to be an undercurrent of discontent about what the horizon looks like for infrastructure

investment. What were the preconditions for the Australian infrastructure market’s success, and has that changed following the Global Financial Crisis (GFC)? Are you seeing some headwinds in terms of the outlook for infrastructure investment? Diana Callebaut (DC): Australia has been attractive for investors largely due to the quantity of deal flow of large transactions, underpinned by a stable regulatory system, a wellunderstood tax regime and low sovereign risk. There have been a lot of government asset sales following the GFC, starting off in Queensland, and then moving to South Australia and New South Wales. More recently, we’ve had the Commonwealth Government’s Asset Recycling Initiative, as well as further privatisations. There isn’t really a formula for the preconditions for privatisations; it’s very complex. But one precondition that is consistent across all asset sales globally is that there is public acceptance of the benefits of privatising assets now, and

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Investment challenges – panel discussion

forgoing public sector ownership in the future. Australia’s attractiveness as an investment destination is a relative question, as you have to look at what’s happening in other jurisdictions. How does Australia compete with others? Globally, the benefits of government asset sales are being challenged by the question of public acceptance. This was demonstrated earlier this year in the United Kingdom, when Jeremy Corbyn came very close to winning the election on a ticket that included re-nationalisation of infrastructure. Looking forward, there’s a question of how public acceptance around asset sales will evolve. I would also observe that there are only so many assets you can sell, so there’s a question around how much primary asset sale activity there will be. DW: Michael, could you share your observations and also reflect on the Commonwealth Government’s recent tax rules, particularly for overseas investors? Michael Cummings (MC): We wrote an article with Preqin 12 months ago, looking at the Australian infrastructure investment market, and talking about what the strengths and attractions were, and they were really fivefold. Firstly, we’ve had supportive government policy over a period of time from both sides. Secondly, there has been a strong pipeline of transactions. Thirdly, we’re using innovative models to facilitate infrastructure investment with the recent asset-recycling programme. Fourthly, Australia has a strong track record in infrastructure investment. And lastly, Australia has proximity to Asian growth, and we see that continuing. Those are the five things that we felt put Australia ahead of the pack. Now, we’ve just done a similar update on the article this year, looking at how we are going against those criteria. In terms of the track record, Australia has had another year of growth, and that’s very compelling. On innovation and procurement models, we are moving into social housing and continuing to innovate, which is great. The pipeline of opportunities is a challenge; however, the area that is getting more focus is government policy. Getting investor confidence and certainty are key criteria that we need to look at. Overall, 12 months ago, I would have said that we were well ahead of the pack. Australia is still a very good place to invest in infrastructure, but our lead has certainly been cut. DW: We see a trend of money going towards infrastructure, with institutions putting bigger allocations towards it. There’s a question about whether the deal flow is as robust as it was in the past. We also see infrastructure returns coming down, and some medium-term interest rate risk in the very low interest rate environment right now. Does that worry you in terms of the outlook for the sector overall, and the returns and assets being bid at the moment?

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Michael Hanna (MH): There’s a sixth attribute of the Australian market that makes it so attractive, and that’s the savings pool that exists within superannuation funds. We have a savings pool that is the envy of the world, at over $2 trillion. It’s bigger than the Australian Securities Exchange, and it’s growing at a steady rate. It could be worth at least $6 trillion within the next 20 years. That savings pool has absolutely fuelled infrastructure growth in the nation over the last 30 years. It’s off the back of that savings pool that we’ve been able to establish infrastructure as an asset class, invest here and then export that expertise around the world. That savings pool is fundamental to this nation’s position today, and going forward. Regarding your question about returns and the low interest rate environment, these are challenges for all of us. We’ve almost generated too much success, to the point where the asset class is seen as very attractive, and the rest of the world has woken up to it. Combined with a low interest rate environment, investors are asking us if there is still value in this sector. We’re absolutely fine with that challenge here in Australia; however, that savings pool is highly mobile, and is moving all around the world for good opportunities. We are finding them, but it’s more time consuming to find them, and these deals are often more complex. We can still get good returns, but it’s a lot different now compared to five or seven years ago. DW: Michael, in terms of the deal horizon for you, what’s on your radar for the next three years or so? Also, how do you draw the distinction between those assets that you’re going to have a red-hot go at and others that you will pass on? MC: That’s a good question and a timely one. Shortly, we will be assessing with our global team in Europe, which is where we will be focusing in terms of asset classes within infrastructure. It is a global asset class, and Australia needs to keep ahead of the pack to keep attracting funding. DC: The volume of capital, and the question around what is structural and what is cyclical in terms of returns are important considerations. The allocations that you make for direct investment are changing compared to 20 years ago, when infrastructure investing was at a very formative stage. It is a more mature asset class now, and there is more capital available for infrastructure investment. This is particularly the case overseas, where some investors have no allocation to infrastructure, compared to our allocation of 11 per cent. This has implications on the opportunities you look at and who you partner with. Regarding our direct investment programmes, we focus on mid-market opportunities in Australia and offshore, in addition to Australian greenfield projects. Some of the trends that we are seeing include increasing partnerships between limited partners (LPs) in transactions and requests for partnerships by offshore investors.

Investment challenges – panel discussion

Image courtesy of Melbourne Airport

DW: What feedback are you getting from those international partners regarding how they are viewing Australia’s infrastructure investment market versus other markets? DC: They still see it as a really attractive market. There’s plenty of equity for appropriately structured deals, for both local and offshore opportunities. DW: Is political risk on anyone’s radar? MC: The International Institute for Management Development (IMD) business school recently released a report comparing the competitiveness of countries in a number of different areas, and Australia has fallen outside of the top 20 for the first time in a long time. Political stability and governance around policy decisions are things that we need to get right, and this includes having governments and industry working together. MH: The natural tendency of these sessions is to talk about deals and the pipeline, but our priority is very much the portfolio we have at the moment. We have more than $10 billion invested in key assets around Australia. Our number one objective is to get the best out of that portfolio and deliver the best return back to investors. We’ve

heard about the growth that’s occurring in Australia – this is not just a recent spike – and this is going to continue for the next 10 to 12 years, at least. We expect to be getting six million extra people living on the eastern seaboard, and we have a significant challenge in trying to stay ahead of that growth. Over the next seven years, we’ve got more than $10 billion worth of new capital to be put into the Port of Brisbane, NSW Ports (Port Botany and Port Kembla), Brisbane Airport and Melbourne Airport, just to keep up with that pace of growth. For example, at Brisbane Airport, we’re delivering the world’s largest ever privately financed and funded runway development. That’s $1.3 billion worth of new runway construction to accommodate growth in Brisbane and South East Queensland over the next 30 years. We’re also trying to get existing assets to operate more effectively. Right now, we only have one track going into and out of Port Botany, which we hope will soon be Australia’s busiest port. Rail has been a great success, representing almost 20 per cent of container movements, and we are planning on significant further growth to address road congestion and the growth of nearby intermodal facilities, including our own at

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Investment challenges – panel discussion

Enfield. If that line is out of action for whatever reason, we’ll have big issues. It is a ‘no brainer’ for Government to invest a relatively small sum to duplicate the line.

DW: Michael, any follow-up comments, or comments on the Badgerys Creek–type model, WestConnex and other more complicated transactions coming to market?

One area in which we are very actively engaged with the Federal Government is Inland Rail. Not connecting Inland Rail to the Port of Brisbane seems to be very short-sighted, and we will continue to engage with them on this issue going forward.

MC: In line with what Michael said, it is early days, and there are question marks; however, there are many examples of governments undertaking early-stage development where it was exactly what the industry needed. How they execute it will be the more difficult part of the policy process. We hope to see that evolve with input from the industry.

MC: We’re seeing continued growth, both domestic and international, at Melbourne Airport. Getting the right framework for investment in transport, both to and from the airport, and runway infrastructure is essential. DW: Michael, you talked about that wall of capital that you have available to invest. We are seeing the Government talking about the use of Commonwealth equity and debt in infrastructure investment with the Infrastructure and Project Financing Agency (IPFA). Infrastructure Partnerships Australia has come out very strongly against the IPFA. From a practitioner’s point of view, what do you see as the risks and pitfalls? What would the collective panel message be to the Commonwealth around the use of Commonwealth equity and debt in infrastructure investment and the IPFA itself? MH: On the face of it, we don’t have a major problem with it. We invest alongside local, state and national governments all over the world in several major investments, including Manchester Airports Group, Vienna Airport and Ausgrid, and this has worked extremely well. Our experience on the whole has been very positive, provided that there is a clear objective for government involvement. In addition, the government needs to have capable people around the table, with long-term perspective and an understanding of the value of private capital. We don’t have an issue with the Federal Government doing the same; however, it’s the first time they’re going to be doing it for many years. The track record has also been mixed in the past. The ‘first cab off the rank’ is Western Sydney Airport, and that’s a big step to take. Understanding exactly how to do that, what capability they have, and getting an understanding of the Government’s structure and overall objective is critical. Being able to extend that beyond the single project to other things will also be a challenge. It’s unclear what the Government wants to achieve and how they want to be involved, whether it’s with equity or debt. So, in broad terms, it’s positive, but there’s a large question mark alongside it. DW: Any other comments on the IPFA? DC: I agree with Michael’s comment. It’s really about governments being very clear around what the objectives are, and assessing what the broader consequences of any interventions are. This needs to be articulated to all key stakeholders.

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DW: One of the more wicked policy issues we’re seeing is around energy security, which would seem to be a natural investment home for institutional investors. If you all had a message to policymakers about energy policy and the way forward, what would they be? DC: I think that certainty is key for any investment decision. While there is uncertainty in what the future looks like, it’s difficult to allocate capital to that part of the infrastructure spectrum. MC: Investor confidence and a long-term perspective are key. My message would be to not bypass the proper policy development process for short-term populist decisions. MH: I think that message, Michael, is key across every sector, and not just in the energy sector. We’ve voted with our feet, here in Australia and offshore, in exiting energy generation assets because the market is just so dynamic and in a high state of flux. We are long-term, core infrastructure investors. Once we start seeing significant uncertainty and volatility, we will do a fundamental review of our assets and businesses, and consider divesting to those better placed to manage the risks. We have exited on both fossil fuels and renewables because we don’t have that long-term stable policy perspective or framework in place to give comfort to our investors that these are sound investments for the next 20 or 30 years. DW: What are your views on the issue of political risk and recent actions by the Australian Competition and Consumer Commission (ACCC), and their impacts on businesses? DC: It’s inevitable that there will be some commercial tension between infrastructure owners and operators. A balance also needs to be struck that accounts for both the commercial interests of your investors and the monopoly market power you have. Getting that balance right is an art, and it’s very difficult to have a prescriptive mechanism that achieves this; however, that balance is important for maintaining all infrastructure investors’ social licence to operate. MC: I won’t respond specifically on that case, but generally, when you’re looking at any investment long term, you need to do your due diligence. You need to work out what your business plan is, and ensure that it’s executed and priced accordingly. MH: We often hear about shared benefits of private ownership across the community. There’s the perennial battle

Investment challenges – panel discussion

to defend why we’re a good owner of airports, our pricing decisions, and how our investment programmes are assigned and appropriate. Governments are under scrutiny as well. We absolutely think that private ownership of these assets is the right thing to do. Everyone in the room here has a role to engender greater trust across the community, and clearly explain what the benefits are of having private owners of these assets. DW: The heavy lifting of communicating the benefits of private ownership to the public tends to get done by government. What more should the industry be doing to sell the benefits of the investments that you make? MH: I disagree. Speaking on behalf of our superfund owners and investors, we have made significant inroads in terms of communication to super members about the dividends to the wider community from infrastructure investment, through to economic and social development, and supporting Australia’s growth. This is in addition to its contribution through member returns. DC: It is difficult to work through the competing interests involved in a government asset sales programme. Our position is that governments are in the best position to inform the public about the role of private sector ownership. While we don’t have a view on which assets should be privatised, we do recognise that there are benefits to the private sector owning some public sector assets. MC: Michael has alluded to the partnerships that we’ve got with a number of the electricity businesses here, so that is another model. The proof will be in the pudding, but I’m confident that it’s a good model and it should be part of the mix, as well. DW: Are there any views on the tax rules being implemented at the moment, and how that’s being handled? MH: We’ve got a ‘Jekyll and Hyde’ environment at the moment, and I can give you an anecdote. A Federal Minister recently met with industry and implored us to invest more in infrastructure. This was at a time when there was uncertainty about tax rules, with the Australian Taxation Office (ATO) releasing a taxpayer alert on stapled structures and then an unexpected, subsequent review coming over the top from the Federal Treasury. The government can’t ask us to invest more and, at the same time, do a twin-pronged attack on stapled tax structures for infrastructure that could fundamentally impact the sector. The juxtaposition of the two issues left us scratching our heads. While the Minister’s defence was that, ‘Well, that’s another part of government’, that is simply not good enough. We need steady and thoughtful government policy applied consistently across the sphere. We can’t have one part of government undoing the great work that infrastructure investors have been doing in this nation over the last 20 years.

DC: Our view is pragmatic. It is reasonable that regulatory and tax frameworks evolve as environments change; however, it’s important to manage the process well, and understand the consequences of any changes on the future appetite for investment. DW: Michael, are you optimistic about the future and the deal flow that you’re seeing? Is this something that you or your investors are concerned about? MC: The mix of deals has changed. You’re seeing a lot of focus now on renewables. There are definitely hot areas, but whether investors think they’re good investments is another matter. In general, there is deal flow, and we do get more refined around where we think there is value for investors. That’s ultimately what we’re going to be held accountable for. DC: You’ve got to be optimistic. Nothing gets done unless you’re optimistic; there are always opportunities. MH: I agree. We are thinking more about how we can be enablers for projects into the future. Going back to getting the most out of assets, and adding to them – the situation in Melbourne is that we don’t have a rail link between the city and the airport. I’m proud to have an Opal Card, and I’ve been using the train from Sydney Airport to the CBD for the last two years. In terms of patronage growth, I think it is up something like 30 per cent in the last two years. Sometimes the trip from the CBD in Melbourne to the airport can be as long as the flight to Sydney. This isn’t sustainable, even in the short term. We’re currently moving 36 million passengers a year at Melbourne Airport, and this will increase to 60 million in 15 years’ time – that’s almost double. We can’t imagine what it would be like to try to commute to the airport. CityLink is a great piece of infrastructure, and it’s being widened at the moment, but in five or 10 years’ time, we’ll have huge challenges. We must offer other options. We’re playing our part, along with Melbourne Airport’s other shareholders and our investment at Southern Cross Station, to try and kickstart the business planning work to deliver the rail link. Both the Federal Government and the Victorian Government are supporting this work with an initial $40 million investment. DW: If you each had one key message that you’d like to leave the audience and policymakers with, what would it be? DC: Cbus is a long-term investor, and we believe that our primary objective in making appropriate risk-adjusted returns for the retirement outcomes of our members is complementary to making sustainable investments that benefit Australian communities. MC: Policy development is like the ‘Goldilocks’ of projects: if you do too much too early, that has implications, similarly to if you do too little too late. In line with what others have said,

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Investment challenges – panel discussion

industry engagement, good planning and taking a long-term view are important for investor confidence. MH: Certainty and consistency around the policy framework are the key themes we’ve been battling with for a couple years. Also, going back to my geography and urban planning roots, this nation is ‘under the pump’ in terms of trying to accommodate

growth. The eastern seaboard is one of the most urbanised areas in the Western world, but the regions need to be the ‘pressure valve’ for relieving the physical impacts of this growth and the exponential growth in costs required to manage it. More progressive policies need to be implemented to pump more growth into the regions than what we’re seeing currently.

Diana Callebaut – Head of Infrastructure, Cbus Super Fund Diana Callebaut is Head of Infrastructure at Cbus Super Fund, and is responsible for developing and implementing the $4-billion infrastructure investment strategy. With extensive business and corporate finance experience, including more than 10 years’ coverage of the infrastructure sector, she has lead and participated in infrastructure greenfield projects and transactions across the globe. She was most recently a director at KPMG and, prior to that, an investment banking associate at Credit Suisse London. She has also held various other investment banking and fund roles. Ms Callebaut holds a Master of Business Administration from the University of Cambridge, a First Class Honours in Finance and Portfolio Management from the University of Cape Town, and a Bachelor’s degree in Business from the University of Technology, Sydney. She is also a Chartered Financial Analyst. Ms Callebaut is on the steering committee of the Women’s Infrastructure Network, Australia’s peak female infrastructure industry body, which aims to increase the visibility and representation of women across the sector.

Michael Cummings – Head of Infrastructure Funds, Australia and New Zealand, AMP Capital Michael Cummings is AMP Capital’s Head of Australian and New Zealand Infastracture Funds. He is Director of Endeavour Energy, Powerco NZ, a Director of Australian Pacific Airports Corporation (Melbourne and Launceston Airports), and an Alternate Director of Interlink M5 and energy start-up Evergen. Before joining AMP Capital, Mr Cummings was the Chief Operating Officer (Energy) at Brookfield Infrastructure. This involved international governance roles as the Chair or Director on a number of company boards around the world, including NGPL and Cross Sound Cable in the US, the International Energy Group in the UK, DBP and Gas Networks in Western Australia, and the Tasmanian Gas Pipeline. With more than 27 years of experience in the infrastructure sector, Mr Cummings is a Graduate Member of the Australian Institute of Company Directors, and a member of the Institute of Directors New Zealand, as well as the Institution of Professional Engineers New Zealand.

Michael Hanna – Head of Infrastructure – Australia, IFM Investors Michael Hanna joined IFM Investors in July 2006, and is responsible for managing IFM Investors’ Australian Infrastructure Fund. He is also a member of the Investment Sub-Committee for IFM Investors’ Global Infrastructure Fund. Prior to joining IFM Investors, Mr Hanna held senior executive positions at the Victorian Department of Treasury and Finance (public-private infrastructure group) and global consulting engineers, Arup, in the United Kingdom and in Australia. Mr Hanna represents IFM Investors as a Director on the boards of Ausgrid and NSW Ports (Port Botany and Port Kembla), and previously represented IFM Investors as a director on the boards of Pacific Hydro, Eastern Distributor (M1 toll road in New South Wales), Interlink Roads (M5 toll road in New South Wales), Ecogen Energy (power generation business in Victoria) and Wyuna Water (publicprivate partnership in New South Wales). Mr Hanna holds a Master of Science in Urban and Regional Planning from the University of Strathclyde, is a Graduate Member of the Australian Institute of Company Directors, a Senior Associate of the Financial Services Institute of Australia and a Chartered Member of the Royal Town Planning Institute.

David Webster – Deputy Secretary, Commercial Division, Department of Treasury and Finance (Victoria) David Webster is Deputy Secretary in the Commercial Division of the Victorian Department of Treasury and Finance, where he is responsible for providing strategic commercial, financial and risk-management advice to the Victorian Government. Activities include asset sales and recycling, managing the state’s balance sheet, prudent supervision of the public financial corporations, public-private partnerships, infrastructure investment, commercial and property transactions, and the monitoring and governance of the state’s major government business enterprises. Mr Webster led the lease of the Port of Melbourne. Prior to joining government, Mr Webster had 20 years’ experience in equity, advisory and debt transactions in economic and social infrastructure and transport (including airports, rail, road, hospitals, schools, water/wastewater), and project finance, oil and gas. Prior to joining the Department of Treasury and Finance, Mr Webster worked for RBS Funds Management in Sydney as Executive Director, running the RBS Australia Social Infrastructure Fund. Previously, Mr Webster was Investment Director at EISER Global Infrastructure Fund in London, and Head of Infrastructure Advisory at RBS London, before which he held a number of senior structured finance positions in banking, also in London. Mr Webster qualified as an Australian Chartered Accountant in 1987 and has a Master of Business Administration from London Business School.

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NAB champions community-led approach to social infrastructure The approach will present opportunity to renew public assets and help communities across Australia. But local government is receiving less government funding to maintain and renovate infrastructure – a shortfall compounded by an expanding, ageing population. Another recurring issue is overreliance on governments to solve social infrastructure problems. ‘Over the last century, governments have increasingly taken on a substantial role in funding community infrastructure,’ wrote Garry Bowditch, Executive Director of the John Grill Centre for Project Leadership at The University of Sydney, in a May 2017 research paper. ‘As a result, communities have largely been displaced from identifying and meeting their own infrastructure needs as do-it-yourself protagonists.’ Steve Lambert

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National Australia Bank (NAB) is leading new thinking on social infrastructure models that will empower and strengthen communities – and go on to spark the next wave of projects.

says NAB Executive General

As Australia’s leading infrastructure bank, NAB is uniquely positioned to champion a communityled approach to projects built on collaboration and innovation.

approach.’

The future, argues NAB, is communities, investors and businesses working together to solve problems, and communities taking greater control of their infrastructure needs.

Association’s (ALGA) National State of

‘We must re-imagine how social infrastructure projects are conceived, funded and delivered,’

ALGA. These assets influence the way

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Manager, Corporate Finance, Steve Lambert. ‘We need to get things done for communities through new financing models and a do-it-yourself NAB’s vision is timely. An estimated $47 billion of community infrastructure requires renewal or upgrade, says the Australian Local Government the Assets Report 2015. Local governments have a critical role. They managed assets with an estimated gross replacement value of more than $438 billion in 2015, found of life for millions of Australians and the livability of communities.

As the inaugural Global Leadership Partner of the Better Infrastructure Initiative at the John Grill Centre, NAB is encouraging a new conversation on social infrastructure. ‘Most of the focus is understandably on large privatisations and public-private partnerships,’ says Lambert. ‘But we must also think about community-based micro projects. ‘NAB is good at bringing Australian and international investors together on billion-dollar infrastructure projects. The challenge is to leverage that expertise into financing new sporting ovals, parks, schools, hospitals, university projects and social housing.’ That challenge is complex. Australia has 537 local government bodies, and different state and territory laws are a complication. Innovative financing

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models that encourage stakeholders to collaborate and to reduce projectfunding costs are vital. ‘A council might want to spend $20 million on a sporting facility,’ says Lambert. ‘The opportunity is getting 50 councils with similar aspirations to work with NAB to raise $1 billion to fund new sporting infrastructure across the country.’ NAB has shown what’s possible. In 2014, it led the delivery of a revolutionary financing model for the Municipal Association of Victoria, which has saved millions of dollars for councils through lower borrowing costs. The Local Government Funding Vehicle (LGFV) allows domestic fund managers to invest in council debt. ‘LGFV is an example of communities working together to raise capital,’ says Lambert. ‘It reinforces the potential of using capital markets to fund social projects through bond issuance. There is an appetite among investors for these assets.’

Financial and social outcomes Lambert says the time is right to connect large and small investors with social projects. ‘Superannuation funds are incorporating environmental, social and government considerations into investment decisions. They want to do the right thing and fund significant community projects that help members.’ Australia’s booming $697 billion self-managed superannuation sector is another opportunity. ‘Why can’t retail investors invest in community projects?’ asks Lambert. ‘Why can’t we develop a new type of asset class that aids portfolio diversification and has an appropriate risk-return profile? Why can’t we create products that

Connie Sokaris

provide attractive long-term financial and social returns?’

Outstanding infrastructure credentials

This thinking, says Lambert, could address affordable housing and other social problems. NAB has funded socialhousing projects in Australia, Europe and the United States, and wants to do more. ‘We know communities need affordable housing, we know it’s vital for social inclusion and we know institutions want to fund it. NAB is working hard to develop new models to fund socialhousing projects, but there’s a long way to go.’

NAB has broad infrastructure expertise

This year, Lambert visited affordable housing projects in the United States. ‘In some parts of America, you cannot tell the difference between social and owner-occupied housing. That’s not the case in Australia. Too often, people who rely on affordable housing must live too far from their work and risk becoming socially excluded from their community.’ NAB’s work in student housing projects shows the potential for affordable housing. NAB is the market leader in organising capital market deals for Australian universities and funding student housing developments.

across industries and the largest global reach of Australia’s big four banks due to its trans-Tasman, United Kingdom, European and United States operations. The integration of NAB’s capital markets and infrastructure approach is another strength. NAB is also the market leader in social-impact bonds, climate-change bonds and Islamic finance, and a leading lender to local government. ‘We can draw on these skills to do something unique for communities,’ says Lambert. NAB’s infrastructure commitment is reflected in its pledge last year to help finance $100 billion of Australian infrastructure projects over seven years. ‘As an industry, we need to rethink the future of banks in helping build stronger communities,’ says Lambert. ‘It must begin with finding ways to fund billions of dollars of social infrastructure and helping communities around Australia.’ ♦

To learn more about NAB’s infrastructure work, visit www.nab.com.au.

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Canberra’s light rail network As one of the world’s most livable cities, Canberra deserves an integrated transport network to futureproof our easy way of life.

Artist’s impression of Canberra Light Rail Dickson stop

Canberra continues to grow quickly thanks to an annual influx of students, families, and businesses; the Australian Capital Territory’s population is projected to increase to more than 500,000 people over the next 20 years. As with all globally emerging cities, Canberra requires a smart, integrated public transport system that is easy to use, safe, efficient, and reliable. ‘It’s been a priority of the Australian Capital Territory Government to build a state-of-the-art transport network for the last decade, with Canberrans emphatically declaring at the last two elections that they are ready for light rail,’

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Australian Capital Territory Minister for Transport and City Services Meegan Fitzharris said. ‘It’s exciting to think that in just over a year from now, Canberra will have an integrated transport system linking our buses, a bike-share system, and light rail network, from Gungahlin to the city and into the suburbs. ‘With work on Stage 1 now well advanced, the next step in connecting the northern and southern reaches of Canberra is Stage 2. ‘We know that the time to build Canberra’s light rail network is now. Public transport planning and

investment must not be left until traffic delays reach unacceptable levels, and impose social, environmental and economic costs on the Canberra community.’

Why does Canberra need light rail? Quality transport will manage Canberra’s growth sustainably by changing and improving movement options, settlement patterns and employment opportunities. Once complete, the light rail network will link residential developments with areas of employment, and retail and entertainment precincts.

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Earlier this year, the Government engaged with the Canberra community about which route Stage 2 should take to get to Woden, with two primary routes left open for comment. More than 4000 people joined the online conversation to have their say, with the majority of respondents suggesting the best route should travel through Barton and the Parliamentary Triangle.

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The development of the Australian Capital Territory’s light rail network has encouraged urban renewal in major town centres and growth along the

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‘Without improvements to public transport infrastructure, road congestion will continue to grow as the Australian Capital Territory’s population increases, impacting on travel times and the overall quality of life Canberrans currently enjoy,’ says Minister Fitzharris.

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The Australian Infrastructure Audit Report, prepared by Infrastructure Australia in May 2015, found that without additional investment, the cost of road congestion in the Australian Capital Territory will increase from $208 million per annum in 2011 to $703 million per annum in 2031.

Stage 2 will provide commuters with access to Canberra’s major educational institutions, retail and entertainment precincts, and employment hubs.

Transport Canberra Light Rail Stop Names Map

Canberra’s proposed light rail network

Stage 2 will not be without its challenges. The business case must

Light rail will reduce Canberra’s car dependency by providing an efficient, sustainable and environmentally responsible alternative.

Contract signing and construction commencement

The Australian Capital Territory Government has already started work on the next phase of Canberra’s cityshaping transport network. Stage 2 of the light rail network will link the northern centre of Gungahlin to Woden in the south, through the heart of Canberra’s city centre.

Woden’s employment population is estimated to reach 120,000 by 2041, clearly illustrating the benefits the region will enjoy thanks to light rail and an integrated transport network.

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Business case complete

Light rail Stage 2 will also make a significant contribution to the continued growth and transformation of Woden, its town centre, and its surrounding suburbs.

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‘The Light Rail Network plan will futureproof Canberra against the significant congestion issues our friends in Sydney and Melbourne experience every day, while also providing for urban renewal and greater cultural opportunities right across the Australian Capital Territory.’

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The development of Stage 1 has played a large role in the emergence of Gungahlin as one of Canberra’s most attractive locations to work, live and visit. Gungahlin was recently identified as Australia’s second-fastest growing suburb.

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Feedback to the community regarding outcomes from consultation and expert analysis

Stage 1 corridor, and has stimulated external investment for a range of diverse opportunities.

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Community consultation and expert analysis undertaken to inform Stage 2 route options

‘In late 2015, the Australian Capital Territory Government released the draft Light Rail Network Plan, which presented a city-wide 25-year vision for building a strong, accessible, costeffective and efficient public transport network with light rail as its spine.

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‘As is the case with all major infrastructure projects, the Australian Capital Territory Government undertakes, it is important we are thinking about how light rail might play a positive part in the future of the West Basin and other future developments earmarked between Civic and Woden. ‘Light rail and integrated transport are one part of a bigger plan to make Canberra an even better place to live as the population continues to grow each year.’

Working with Canberra Metro – a public-private partnership Canberra Metro, the successful consortium for the 20-year public-private partnership (PPP) project for Stage 1, will design, build, operate, and maintain the first stage of the Light Rail Network between the city and Gungahlin.

Artist’s impression of Northbourne Plaza terrace

consider crossing the lake, protection of heritage buildings, the sensitive landscape around the Parliamentary Triangle and gradient along the route.

projects to take advantage of several shared opportunities, which include: ►

how potential light rail stops and

However, we know these challenges can be planned for and managed in order to build the most important stage of Canberra’s light rail network.

the future shape of Parkes Way

Linking with Canberra’s other priorities

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It is also important that the Australian Capital Territory Government’s other major infrastructure projects are carefully considered during the design process of Stage 2.

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progressing the business cases of both

might impact development of the West Basin precinct, and their role in connecting the city to the ►

planning for integration of broader traffic and road network changes to include public transport modes.

‘The development of Stage 2 and its business case must strike a balance

Significant land use, planning, and development commonalities, have been identified between Stage 2 and the upgrade of Parkes Way.

between protecting Canberra’s natural

The Australian Capital Territory Government is simultaneously

the network corridors and beyond,’ says

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beauty and garden suburbs, while stimulating economic activity and activating land use in new ways along Minister Fitzharris.

Once complete in 2018, Light Rail Stage 1 will deliver 12 kilometres of light rail, with 13 stops, and 14 light rail vehicles, with services every six minutes during peak times. The Stage 1 PPP contract has a capital budget of $707 million, which is estimated to account for less than one per cent of Australian Capital Territory Government expenditure over that period. ‘This PPP contract is an example of how government can work with the private sector to renew assets, and deliver economic and social benefits now that will exceed the project’s cost,’ says Minister Fitzharris. ‘The Australian Capital Territory Government is investing in a network that will benefit Canberrans of today and tomorrow, once and for all providing a better way to get to where we need to be.’ ♦

Technology, transport and reform – panel discussion

L–R: Craig Shortus, Jessika Loefstedt, Tim Reardon and Lisa Tobin

Technology, transport and reform Key points: • • •

Data and information pose one of the greatest changes to the transport industry. Information and communications technology (ICT) is breaking down the barriers between travel demand and providers, and the user and the network. Autonomous vehicles (AVs) will only become a reality with appropriate changes.

Panellists:

part of the answer to transport reform, what is less clear is the

Jessika Loefstedt, Manager, Public Policy and

way forward. The first question I’d like to put to the panel is

Government Relations, Uber

regarding information and communications technology (ICT).

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Tim Reardon, Secretary, Transport for NSW

What does this mean for transport?

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Lisa Tobin, Group General Manager, Technology,

►

Transurban

Moderator: ►

Craig Shortus, Head of Utilities and Infrastructure Australia, ANZ

Tim Reardon (TR): For me, it’s a couple of things. Firstly, it’s really good to be the Secretary of Transport for NSW and to be asked to sit on this panel – that’s the point we’re heading to in terms of transport being a technology business. Secondly, I want to acknowledge Mike Mrdak in the audience, who’s been Secretary of the Department of Infrastructure and

Craig Shortus (CS): Transport is something that clearly impacts

Regional Development for a long time, and who is a great

all of us, whether we’re in the industry or not, and it’s undisputed

colleague and friend. The fact that he’s moving to the Department

that technology and data will certainly play a significant role in

of Communications and the Arts, and I’m here speaking about

the future of transport. Whilst we all know technology is a key

the link between transport and communication, is also a good

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Technology, transport and reform – panel discussion

thing. Well done, Mike, for everything that you’ve done for us – you’ll be sorely missed, but we’ll communicate in your new role, no doubt. The question about ICT is pretty simple: it’s what is in it for customers and what we can do as a government agency to provide a better customer experience. We put out the Future Transport Technology Roadmap that gives a pointer in two areas. Firstly, unlocking how we can get more customer centricity in terms of what products and services we have, while unlocking value in our current system; and secondly, how we can plan for the future in terms of using things such as big data. What’s next for customers? Over the long term, we have to deliver a mass transit system. Our role may shrink over time, with private sector partners taking on a bigger role, but our core proposition of being an enabler and a facilitator of mass transit will continue over the long term. We are seeing more and more opportunities to unlock value with all the data we have in our ICT systems. Jessika Loefstedt (JL): Uber is obviously a technology company, and people sometimes find that a little bit challenging because they’re very much in transport and logistics. The Minister for Transport here in New South Wales says quite openly that the future of transport is technology. That’s a really good way of thinking about this, because there are so many different opportunities. When it comes to the data, there’s a lot of intelligence and a lot of insights that we can share, whether it’s with departments or whether it’s with other private operators. There are a lot of opportunities here to look at user cases and apply the data that we have to help the network as a whole to move better, whether that’s in Sydney, Melbourne, Perth or Rio de Janeiro. Lisa Tobin (LT): We see transport as a consumer business at the end of the day, and consumer business expects that technology is going to be the interface. Increasingly, we are going to be able to bring together data to deliver a service that suits consumers’ choices and availabilities, and, from my point of view, a service that does that safely, on time and with certainty. CS: Turning to the theme of measured improvement. Tim, data has overhauled your world. As a policymaker and a project planner, can you tell us what’s changed for you, and what you see moving forward? TR: It’s evolving quite quickly, so the question is what’s changed and what’s changing. Key for us, as a delivery agency, are the opportunities from precedent service and capital investment. You can do a lot of things differently. It gives you an opportunity to experiment. The largest thing that’s changed for us is the culture of the organisation: customer, culture and collaboration. We talked about these in a Future Transport Summit that we held in April last year. That Future

Transport Summit had a vastly different crowd than the one here today. It was very much about allowing people to come along and disrupt us, to provide better customer service and to unlock value. The culture of the organisation is one of the single biggest changes. You could have had me sitting here talking about Sydney Metro, WestConnex or any other project, but I’m delighted to be having this conversation, because that’s where we’re evolving, and that’s what a lot of government transport agencies will need to do in order to survive. They need to redefine their role, and they need to redefine their role as an enabler and a facilitator of transport services. They don’t have to provide the core delivery of everything. They need to partner, they need to collaborate, they need to contract a whole range of things, and we’re doing that more and more. It is quite cool that our people are out there having a crack with technology. If they fail, they fail faster on an app, or whatever it might be. I’ve got one of the first Opal Cards and it’s about to expire. It feels like only two minutes ago people were saying, ‘Sydney hasn’t got a transport smart card’. Life moves fast. We’re now on to credit cards on the Manly ferry. We talk about the next evolution of transport, and we think we’re in a very exciting space. This area is all about opportunity. It’s not about harnessing and complexity, it’s just good fun, it really is, for a government agency to get into that space. That culture is where we want to get to. LT: I think that there’s a really good conversation around culture that is starting. We’re often innovating within our own company. More than 40 per cent of our workforce is now in technology, and we are led by a self-confessed ‘tech geek’. As I said before, it’s a consumer business. People expect technology and expect availability. For us, it’s all about how we experiment. How do we anticipate the next consumer need in delivering transport? That means all types of things for us. It’s very similar to the journey that Transport for NSW has been on. We’re looking at how we can disrupt our industry, how we can disrupt ourselves, and how we make sure that we’re at the forefront of what’s coming next. We spend a lot of time across our company, looking at what our consumers expect. What does the travelling public expect? How do we bring that together with the best of the emerging technology markets, or the right platform? How do we manage all this data? We have more than 700 kilometres of optic fibre across our assets, and we need to make sure that the fibre, which is responsible for moving the data around 100,000 or more devices that hang off that fibre, is kept secure. To know what that data is doing is a big part of our focus. I was speaking to an analyst in the market recently, and he was saying that data has no value, unless you bring it together

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Technology, transport and reform – panel discussion

with analytics, algorithms and artificial intelligence. It’s really about how we make sure we have the best of the emerging technology. How do we make the right bets? How do we learn how to fail fast? How do we experiment within our company and with our partners? How do we take good care of the assets that we are custodians of on behalf of the travelling public? JL: This is not my first rodeo, I’ve been sitting around the transport sector for a while, and there’s a shift in terms of culture that I’m seeing within some of the bureaucracies, which is really quite fascinating. New South Wales is leading the charge in this space. For Uber as an organisation, we like to think of ourselves as very consumer-obsessed – we call it a customer obsession. When we talk about disruption, or if we talk about internally disrupting ourselves, it’s funny because the way the Uber culture works is we don’t do anything that the customer doesn’t want. We’ve got what consumers crave, and we’re willing and able to push that bandwidth a fair bit. We wouldn’t have been as successful as we have been over the last five years if no-one had pushed the button to get a ride. LT: I think that you helped us to make sure that we weren’t resting on our laurels, because we had less momentum when we started in this space a few years ago. Once you look out there and see what’s possible with start-up companies – what they can do and what they can generate – I think the game’s on. Governments, and more traditional-looking companies like us, are out there to compete as well. JL: That’s what’s really refreshing in dealing with some of Tim’s team on a day-to-day basis. The mentality has shifted from

Artist’s impression of NorthConnex. Source: Transurban

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‘This is where we always stand, so let’s continue doing it this way’, to ‘What do consumers want?’ That’s a real paradigm shift and it’s super important, because if that doesn’t happen well across the nation in the context of dealing with governments and offices, it will hold us back. A couple of years ago, everyone was running around, saying, ‘Big data! Big data! We need big data! We need to put it in there somewhere, and then someone will figure out what to do with it’. Early on, Uber realised that you need to have a user case. If you don’t have a user case that helps you to achieve an outcome with big data, then you’re not going to get there. A good example of that is the IPA Transport Metric, which we launched with Infrastructure Partnerships Australia (IPA) last year – it’s a measurement tool that lets us look at travel-time data across our different cities. The feedback we got back from Mike Mrdak, which created a lot of insight, was how powerful it would be to have one tool that measures travel time in the same way across all major metropolitan cities, because we have VicRoads doing it one way and we’ve got Roads and Maritime Services (RMS) doing it another way, for example. Through Uber, we’ve got live sensors on the network on a day-to-day basis, and that creates the consistency to compare measurement. Having that user case, and really understanding what that helps you do, makes a lot of difference. TR: Both Jessika and Lisa have made comments about their interactions with government, and how they go about things. Both Uber and Transurban do it differently, and neither is right or wrong. There have been really good lessons in

Technology, transport and reform – panel discussion

the last couple of years on how to go about disruption. As a Government department, we keep saying yes until we have to say no, and if we have to say no, then we look at the law and regulation, and where there’s an end point and where there’s a start point. We’re happy to let anyone walk through the door and give us their view on life. Sometimes that will frustrate us or them, and sometimes it won’t. But at the end of the day, you’re teaching us, and we’re teaching you about government and private sector interaction, and the key is always partnership. From a government agency setting, we just need to be ready. We need to be nimble, agile and all those types of things for the next challenges that will come along. We’re getting on the front foot. For example, we’re disrupting the bus system with on-demand services. We’ll keep doing that, since we’re the ones who talk about mobility as a service. We think we’re a little bit ahead in our thinking, and I’m sure everyone else will catch up and overtake us, because we’re a government agency, but we are trying to get on the front foot. Part of the reason is because we’ve got a Minister for Transport and Infrastructure who is championing this so hard. His expectations are probably two years ahead of where our delivery capability is at the moment, but may it continue in terms of him dragging us forward. We don’t need a lot of prompting, but having that political champion is quite exceptional. CS: Let’s jump into data. Not being a ‘tech head’ myself, I did look up a few statistics on data. By 2020, it’s forecast that there will be 40 zettabytes of data, which is equivalent to 43 trillion gigabytes. Every month, 30 billion pieces of content are shared on Facebook, and each month, more than four billion hours of video are watched on YouTube. That’s quite extraordinary. The velocity of this data is obviously increasing, thanks to streamlined technologies and the Internet of Things (IoT). So, my question is: big data often seems to lose its purpose in the sheer scale of information available. Is it about big data, or is it about good-quality information?

go that way,’ which shows that it’s just not possible for one individual, or one small piece of data, to optimise the system. The possibility with data, as we look forward, is the fact that we now have the computer capability and the technical capability to develop the right algorithms, the right sequences, the right machine learning and predictive analytics. I don’t have to worry about whether I should be in this lane or that lane, or going faster or slower, because I will be given a service and the pressure of making the right choice will go away, because we’re using data more effectively. That’s what binds all of us together – that vision on the hill. CS: Tim, you have one of the biggest databases going around town.

LT: It’s about putting smart data in, to get smart data out. It’s a nicer phrase than garbage in, garbage out. The volume of data around is mind-boggling, and it’s an opportunity for industry at this point in time. We now have the technological capability to make sense of that data – parts of it might be technical, but we can select what is valuable.

TR: Yes, and many of them. To your point about zettabytes, we should just know how to take them along slowly. Our operational technology manages smart motorways, the Sydney Coordinated Adaptive Traffic (SCAT) system, the TNS, new railsignal systems, automatic train systems and more, all of which are needed, and all of which need to be upgraded, which is a big job for us. Someone has to build the data so that we’re ready for the next 10 to 20 years.

With consumer design at the centre, we can make sure that we’re pulling the right data together at the right time for the desired outcome. I ponder this every day as I drive into work because I commute over a fairly busy road, and I dream of what’s possible. I sit there every day, watching myself and my fellow drivers as individuals trying to beat the system with imperfect knowledge, and imperfect data. We don’t know what’s around the bend or whether there’s a congestion point further along. We’re all thinking, ‘If I swap lanes, if I go this way, if I

We’ve just organised ourselves an Open Data Hub so that large swathes of our databases are available. There are now about 3,600 registered users utilising our data for all manner of things. The key now is to get a little bit more sophisticated in the datasets that people need. Some people use our data very effectively, and very quickly, but at the end of the day, it’s all about what’s best for the customer. That should flow into what datasets are needed. We’ve got a massive job to produce all that data, and keeping them updated is a big job.

futurebuilding

Technology, transport and reform – panel discussion

L–R: Craig Shortus, Jessika Loefstedt, Tim Reardon and Lisa Tobin

LT: We’ve got an opportunity to learn on the way, as well – on smart motorways, for example. On the Monash Freeway upgrade, as part of CityLink in Victoria, we’ve leveraged the data and used technology to deliver far greater traffic volumes. We’ve effectively increased the capability of the road, as if we added another half a lane just by introducing technology and using data better. We’ve got lots of opportunities to experiment as we refresh these data platforms. JL: Travel-time data is one thing, but another thing is what we have in the phones that are in the cars. We’ve got the telematics in those phones that can potentially ascertain road quality in the future, for example. CS: Let’s move on to everyone’s favourite: personal autonomy versus autonomous vehicles (AVs). When would we see AVs roaming the streets, and is the excitement about the concept well ahead of where we’re likely to see the network? LT: We see autonomous vehicles roaming the streets now. There are a number of trials across Australia, and across the world. We’re running a trial at the moment on CityLink in Melbourne, partnering with a number of car makers and the Victorian Government, which is an individual trial on a controlled roadway. You need to get to a critical mass before the true promise of autonomous vehicles becomes real, because only once they’re working in concert – in a platoon – exchanging information with each other, and exchanging information with the road infrastructure, the promise will become true. We still think that’s 10 or more years away. JL: I agree, it will probably be 10, 15 or 20 years before autonomous vehicles are operating on that scale. But they’re out there and happening right now. At Uber, we have three large trials underway in the United States. We don’t want to be in the sandpit, we don’t want to be in someone’s car park, and we don’t want to be in a controlled environment, because what we do know is that we’re not learning if we are in this type of environment. We need to be in an environment where the technology can interact and interrelate with other vehicles

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and infrastructure, whatever it might be. The key thing, when it comes to autonomous vehicles, is that we need to change behaviour. What’s really interesting with Uber, and with ride sharing as a platform in the first instance, is that we need to get used to not owning our own car, which goes to Tim’s point earlier about mobility as a service. So, we need to get used to not owning our own car, and we need to get used to not being afraid of sitting in a car with someone else. That kind of shift in attitude and behaviour is really a necessity to get autonomous vehicles into the market at scale, in the medium to long term. LT: Yes, the debate is about how much that is partly generational. JL: Absolutely. LT: It’s also very much about how government engages in a debate. I saw a report recently in regards to the German Government, which has now defined rules for autonomous cars – this will be more of a catalyst and should drive the adoption faster. There was also something recently about the United States Senate looking to legislate for a faster ramp-up, as well as exemptions and safety legislation. It’s clear that this is a fastmoving market. Uber is an example of not waiting for all the rules to be 100 per cent defined, and I think we’ll continue to see that across the market. We need to experiment and we need to stay close to what’s happening in the market. We need to engage across the board, because there isn’t yet a clear winner, outcome or timeline for autonomous vehicles. TR: We’re behaving quite a bit like a private sector participant. We’ve got a driverless shuttle bus trial going on at Olympic Park at the moment, and we like to have a whiz around on it. We’re not waiting around for the regulation and law, either. The National Transport Commission is looking at the broader frameworks, and states will get on with their own laws pretty quickly. That’s the end point of the discussion and not the start of it. There will be bumbling around on autonomous vehicles for the next few years, and there will be a bit more critical mass, but we should all explore behaviours in urban areas, and regional areas for that matter. We think

Technology, transport and reform – panel discussion

that there are great opportunities for regional areas for a whole range of trials and tests. The things that Transurban is looking at are great in terms of getting closer to the reality of what we have available on the motorways, but we will play a fairly direct role, and a disruptive role, in how that works for a whole range of vehicle types. This is parallel to the question of what the objective around safety and congestion is. That answer will take a while to emerge. I’m not sure about the timeline, so it’s interesting to hear Lisa and Jessika talk about 10 and 20-year timeframes. The law, regulation and insurance might be the limiting factors on rushing progress. I think that there could actually be business models, commercially, that will be available. If you ask us about some of our new infrastructure, like a transit way, starting to think about autonomy in those environments could be a little bit sooner than we think. CS: So, will I have to teach my seven-year-old twins how to drive? LT: I don’t know. I’m not teaching my teenage children to drive. CS: Tim, over the years we’ve seen various transport plans. Is Future Transport just another plan? Or is it really going to

change how we travel in the future, bearing in mind that New South Wales is forecast to have a couple of extra million people over the next 20 years? TR: We’re preparing the Future Transport Strategy right now, and it allows us to have a think about how we’re going to move across New South Wales in 40 years’ time. That’s quite breathtaking, because the Government is allowing us to look that far out. We’re in concert with the Greater Sydney Commission, which is looking at a plan for growing Sydney. That’s 20 years’ worth of what the reform, infrastructure and services pipelines might be, and then some broad beams after that out to 2056. New South Wales will have 11 million people in it, and Sydney will have eight million. Melbourne will be the same at eight million. It’s quite extraordinary to think about in those terms. It will have its own unique forms of density, and there will be ongoing discussions and debate about that. To be clear, it’s not just another plan. We did the Long-Term Transport Master Plan in 2012, which was for 20 years. We said we were going to refresh it after five years, and here we are, doing what we said we would do. The reason we rushed the plan refresh a little bit earlier than we thought is because we ran

We’re investing in Australia’s future Australia is growing and we’re growing with you. With almost two million trips recorded across our roads every day, we’re investing in new projects and technologies to make your journey easier and more reliable.

For more information visit transurban.com

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futurebuilding

Technology, transport and reform – panel discussion

out of projects. That’s a phenomenally happy problem to have.

community, the broader New South Wales community, and all

For a government agency to have enough capital and political

our customers will want to know about it and they’ll want to

support to actually get on with every project within a 2012 Long-

know about it immediately.

Term Master Plan is quite extraordinary. As a sidebar example,

What comes out of it will be beyond our capacity to deliver

we’re buying metro trains, suburban trains, intercity trains and

in the short to medium term, but the prioritisation process at

regional trains, all at the one time. We used to buy one train

Infrastructure NSW will tell us where government may invest

type every decade, so it is quite breathtaking in terms of scale.

over the next five to 10 years, and that’s a good, proper process.

We need to refresh, and we need to do it now, because

It’s good to be given the opportunity to think 40 years out.

everyone in this room wants to know about the F6 Extension,

The only thing we know is that some of it will be right, and some

Sydney Metro West and every other project we have after that.

of it won’t be. It will be digitised, so it will be updated far more

People want to know how Western Sydney Airport will look,

frequently, and that’s a credit to the people who have worked

and what road and rail links we’ll have around there. They will

on it. Future Transport is a prime example of how we’re doing

demand it; the investment community, the professional services

things very differently.

Jessika Loefstedt – Manager, Public Policy and Government Relations, Uber Jessika Loefstedt is a the Head of Public Policy for Uber in Australia and New Zealand. Her experience spans the public and private sector, having worked in the senior ranks of national government as well as the private sector. Prior to joining Uber, she worked for a number of transport and infrastructure ministers, both at a state and federal level.

Tim Reardon – Secretary,Transport for New South Wales Tim Reardon is the Secretary of Transport for New South Wales, the lead agency of the transport cluster, which employs over 25,000 people. The role covers the planning and delivery of transport services and infrastructure, including trains, buses, roads and traffic, freight and ports, light rail and point-to-point services. He is accountable for delivering the largest transport infrastructure pipeline in a generation, including $41.4 billion over the coming four years, and driving reform to make the network better integrated, more customer-focused and efficient. Mr Reardon has over 25 years’ experience in the public and private sectors, here and abroad.

Lisa Tobin – Group General Manager Technology, Transurban Lisa Tobin joined Transurban in February 2013 as Group General Manager Technology, and has overall responsibility for the technology strategy. Transurban manages and develops urban toll road networks in Australia and the United States. Technology plays a critical role in these operations and the planned growth of Transurban. The scope of technology at Transurban extends from the gantry to the back office systems, and controlling the safe operation of roads and tunnels. It is responsible for defining and delivering the portfolio of projects needed to create organisational capability and change, and partners with the business to provide insight and expertise to optimise Transurban’s investment in technology. Prior to joining Transurban, Ms Tobin was at Australia Post, where she was responsible for technology strategy, development and services to support the national retail division. Previously, Ms Tobin held a number of senior technology roles across the financial services industry, and focused on setting strategy and delivering technology capability to bring new business models to market.

Craig Shortus – Head of Utilities and Infrastructure Australia, ANZ Craig Shortus, Head of Utilities and Infrastructure Australia, ANZ, has been with ANZ for over 15 years and is responsible for the bank’s coverage of its utility and infrastructure (both economic and social) customers in Australia. Mr Shortus heads a team of 11 executives who are represented in the state capitals. As head of the coverage team, Mr Shortus is responsible for managing the bank’s overall relationship with its institutional customers, including funds and their inbound investments into Australia. As part of Mr Shortus’s career at ANZ, he has held other roles on the coverage business side, including spending two years with ANZ in Hong Kong managing both key Asian infrastructure customer names, and was Chief Executive Officer of the Hong Kong branch. Mr Shortus’s philosophy with his customers, and the team’s approach, is to engage and lead from a relationship contact point and be the customer’s advocate across the bank and with key stakeholders. Prior to joining ANZ, Mr Shortus spent 10 years with New South Wales Treasury Corporation, where he was responsible for managing the state’s large-scale asset financing, and running the corporation’s Debt Capital Markets business.

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42 PPP PROJECTS ACROSS AUSTRALIA, CANADA AND THE US $30 BILLION PROJECT CAPITALISATION

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Sydney Airport at forefront of innovation in airport infrastructure A heightened customer focus and significant investment program will deliver a positive step change in the customer experience. With 43 million passengers each year and growing fast, Sydney Airport’s significant investment in infrastructure is improving the customer experience and positioning it to meet unprecedented demand. The goal: to make the ‘Syd’ experience easier, faster and more enjoyable.

‘Sydney Airport is competing very effectively internationally to attract new airlines, new destinations and increased services,’ says Mather. ‘The result is increased tourism and trade for Sydney and Australia, which is good for jobs and the economy.’

‘Sydney Airport is focused on transforming our customers’ experience through every step of their journey,’ says Kerrie Mather, Managing Director and Chief Executive Officer, Sydney Airport. ‘We’re investing in our roads, terminals and airfield to get people on their way faster, and [to] provide a great airport experience in the process.’

A key focus of infrastructure investments is making airport access easier, no matter how people choose to travel.

The infrastructure program is the largest since preparations for the 2000 Olympics, and it is improving aviation capacity, ambience and dwell areas, and operational efficiencies. Mather says the program is informed by customer needs. ‘We do extensive airline and passenger surveys to understand and prioritise investments with the biggest impact. Everything is about listening and responding to customers, and getting the best result for a wide range of stakeholders.’ Much is at stake. Sydney is Australia’s busiest airport by passenger movements, and in 2016, its international passenger growth was the highest in 12 years – up 8.9 per cent to 14.9 million people. In the first half of 2017, international traffic grew a further 7.7 per cent, particularly due to demand from Asia and the Middle East.

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Airport road improvements are a year ahead of schedule, and the road changes in partnership with the New South Wales Government will ultimately improve traffic flows in and around the airport. New electronic wayfinding signs will improve navigation, and will respond dynamically to traffic flows by making changing lanes and following directions simpler. ‘Only 10 per cent of passengers use paid parking at the airport, but our location means the roads around the airport are in high demand,’ says Mather. As well as taxis, limousines, buses and ridesharing cars at the airport, a great deal of commuter traffic flows past the precinct. ‘It’s important [that] all customers have the best choice of transport options and price points,’ says Mather. Greater use of public transport is a feature of the program. Two hundred extra trains to Sydney Airport will run each week by the end of 2017; new ridesharing zones have been introduced;

a new pedestrian/cycle path for Terminal 1 has been built; and ground transport interchanges are being upgraded to support extra bus services. While there is a great deal of activity to improve access, the terminal experience is being enhanced too. Following T1 International’s retail transformation, a similar revamp is underway at T2. Meanwhile, new technology will complement the infrastructure. Automated check-in and biometrics promise to transform the passenger experience. More real-time information on travel times and taxi queues will be introduced after this technology is successfully implemented at security screening and passport control. The airport’s open-data strategy will also empower customers to plan their trip by making important information available on their mobile. Mather says such technology will shape Sydney Airport’s future. ‘Technology is changing every aspect of our industry and it’s vital [that] we ensure our infrastructure allows us to deliver on our customers’ evolving needs,’ says Mather. ‘Good infrastructure makes everything work more efficiently – and when you take the stress out of flying, passengers better enjoy airports and their journey.’ ♦

To learn more about Sydney Airport, visit www.sydneyairport.com.au.

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Dr Kerry Schott AO

Dr Kerry Schott AO, Chair, Energy Security Board Key points: • • •

High consumer prices, uncertain emissions reduction policies and energy reliability are now major issues. Political overreaction in the energy sector is unable to deliver sound policy outcomes. There is no single measure to ‘fix’ the electricity market; it will rely on a suite of responses.

I have recently been appointed as Chair of the Energy Security

Queensland, New South Wales, the Australian Capital Territory,

Board (ESB). Being someone who enjoys a challenge, I

Victoria, South Australia and Tasmania. It does not include the

accepted the role.

Northern Territory or Western Australia.

The key task of the ESB is to implement the recommendations

The interconnectors across the state boundaries are

in the Final Report of the Independent Review into the Future

quite thin. Recently, the New South Wales Minister for

Security of the National Electricity Market (the Finkel Report),

Energy remarked that the ‘market is hardly national’. This is

which is a blueprint for how to reform the electricity market.

a valid statement, given that the grid is constrained by power

The other members of the ESB are: ►► Clare Savage (Deputy Chair) ►► Paula Conboy ►► John Pierce ►► Audrey Zibelman.

connections across state borders. Within the NEM, generators provide electricity and bid at five-minute intervals across the day. The Australian Energy Market Operator (AEMO) then ranks the bids from cheapest to most expensive in order to meet the demand required by

The National Electricity Market (NEM) has existed for

the market. The NEM then dispatches energy, and AEMO’s

about 20 years. It is a wholesale market for electricity across

role is to ensure that the system remains stable as energy is

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Dr Kerry Schott AO

dispatched. The price received by generators for the energy being dispatched is the highest price accepted by AEMO as part of the bidding process – prior to distribution. For example, when bidding, AEMO knows how much needs to be supplied over any interval of time, and it takes the cheapest bidders until the requirements for those time intervals have been met. Generally, the most expensive bidders are gas and coal generators. The system we have has traditionally worked well; however, this is increasingly no longer the case. The NEM is an energy-only market, meaning that it is based entirely on the price of energy. When electricity is scarce, the price increases significantly. When the NEM reaches capacity and there is a shortage of supply, the high prices are sustained for long periods of time. This approach is supposed to encourage new plant, repairs, maintenance and upgrades. To protect market participants against price volatility, there is a cap, meaning that the price of electricity cannot rise above a particular threshold. There is also a price floor, which is, in effect, set by the lowest bidder in the market. How the NEM has evolved over the years is quite interesting. The system has always had excess capacity and has worked efficiently as a result. When there is excess capacity, there used to be a competitive bidding process by the generators, which kept electricity prices quite low. Until recently, consumers enjoyed good outcomes, and there was no need for additional capacity in the markets, except for gas peaking plants, which provide power at the peak periods of the day. Network businesses, such as Ausgrid and TransGrid, are all regulated by the Australian Energy Regulator (AER). Network businesses are in the market to transport electricity in a highly regulated environment. Whilst they have contributed to the higher prices consumers pay, they are not a major driver behind the current market volatility. There are three major contributors to current market volatility: ►► high consumer prices ►► uncertain emissions reduction policies ►► future levels of reliability and security being called into question. The ESB is extremely concerned about this summer. AEMO has already put out a warning to Victoria and South Australia to ensure that they have enough power for the summer months. Similarly, New South Wales will have reliability issues when the Liddell Power Station closes in 2022. Australia has several management issues to deal with. The first is the increasing proportion of wind and solar power in the market, alongside the retirement of older coal and gaspowered generators. For example, the Hazelwood Power Station shut rather unexpectedly, catching everyone by

surprise. Similarly, more coal and gas power plants will retire over the next 20–25 years. Past lessons have taught us that as change occurs in the electricity market, politicians become very concerned about the ‘lights going out’, and can overreact. Public servants still tell the story of then New South Wales Premier Neville Wran demanding that more power plants be built while he was in London during a series of rolling blackouts in New South Wales. That is how Mount Piper, Eraring, and Bayswater, which are the big power plants in New South Wales, came into existence. These plants added to the overcapacity in the market, largely in New South Wales and Queensland. One of the issues that we are facing is the risk that we will have another overreaction, which is why the Finkel Report is important. It provides us with a blueprint for a very orderly energy transition to get from where we are now to where we need to be. On the price front, what happens with wind and solar is interesting. When the wind is blowing or the sun is shining, renewable generators bid their price into the market at a marginal cost, close to zero. As the level of renewables increases and is bid into the market, this is first accepted for dispatch, as it is bid in at a comparatively lower price to traditional generation. The market still requires coal and gas-fired plants to provide system inertia and be available when the sun does not shine, or when the wind stops blowing. As noted earlier, we have a situation whereby a fleet of renewables is coming into the market at the same time as a fleet of coal and gas-fired plants is retiring; however, we still require a portion of that fleet to keep the system stable. The converse impact on prices is that they bounce around from being very low when all the renewables are running, to extremely high when the renewables are not running. This occurs when coal and gas generators are bidding into the market and trying to make enough money to cover all the intervals in which they have not

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Dr Kerry Schott AO

been able to dispatch energy. This leads to enormous volatility in prices, which we are seeing in South Australia at the moment.

answer, but there is a lot of ongoing work about whether or not we need to introduce one.

The price of coal has also risen – it used to be about $25 a tonne, and it is now around $50–60 a tonne. Gas is also very expensive, with costs determined by fuel prices, which have all gone up. This has added to the volatility in the market, and has created a challenging environment. One of Dr Finkel’s primary concerns is reliability. In effect, the questions we need to be asking are: have we got enough supply to meet demand? Have we got it all the time? Have we got it when the wind’s not blowing and the sun is not shining?

The other necessity is system security, which means keeping the grid stable. For system security, you need steady frequency and a steady flow of power. That is something that the laws of physics dictate, so as we increase the proportion of renewables, we need to make sure that we have responses in case of sudden outages, such as during a severe storm or fire, or a major plant going down.

The question that follows then is: will the market, as it is currently set up, provide the necessary signals to encourage market participants – the private sector – to invest in new plant? At the moment, this is not happening due to a number of reasons. Even if we had a Clean Energy Target, the jury is still out on whether an energy-only market would provide the right signals. In other offshore jurisdictions, when there is a large increase in the proportion of renewables in the system, an environmental target and an energy price market, a capacity charge tends to be introduced. A capacity charge means gas and coal plants are paid for being available, as well as for what they bid into the market. A capacity charge changes the market system, making it very complicated. No-one, including Dr Finkel, was prepared to go down that path. It may be the right

Australia is a country that is prone to outages caused by extreme weather events. What happened in South Australia was unusual in its severity, but not unusual in the fact that it happened. All of these issues are adding to the need for storage – either in batteries or hydro – for fast frequency responses, and also in new technical specifications for renewables. AEMO is also looking at whether we should have a reserve market in the future. One of Dr Finkel’s suggestions was to look at the possibility of having a short-term response, which is a reserve that is auctioned and provided by gas and coal plants. AEMO recently proposed this idea, and is now looking at how to set up a reserve market auction. This reserve would only be used in extreme cases, such as in the case of a storm or 40-degree days in Victoria, South Australia and New South Wales, for example. Another vital area of consideration is the high prices we are currently experiencing. For retail customers, the information they receive on their bill is complicated and opaque. The Australian Energy Market Commission (AEMC) has made numerous recommendations about making household bills clearer and more competitive, and the Prime Minister has been correct to berate energy retailers. The major retailers spend most of their marketing budget on retaining their customers, not on explaining their tariffs, or encouraging different types of offers. Currently, with the type of offer you are on, it is not clear: ►► if you have got a discount ►► how long it is for ►► how long it will be available for ►► if you are subject to a late payment charge ►► if there is an exit fee if you switch providers ►► if there is a payment processing fee, with or without a credit card, or both.

Source: TransGrid

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There is a government website, ‘Energy Made Easy’, that is designed to help people to work out what is in their bill; however, if you go onto that website, you will find that it is clunky and anything but easy. One of the recommendations in the Finkel Report is that the AER should fix this website. It is unlikely that we will have a good website for people to select and shop around for energy offers until the information is made available to the private sector to develop applications that will

Dr Kerry Schott AO

get information promptly to consumers. The other thing that could help with bills is if people use less power. It really does strike me, coming from the water industry, how little focus there has been in electricity on demand response. It is starting to happen, and it has always happened with big customers that write contracts where they are rewarded for cutting back at particular times. On 10 February this year, New South Wales had a big scare, and Tomago had to cut back on the power that they were using for the aluminium smelter – they would have received a handsome sum of money for cutting back when they did.

It is also becoming increasingly difficult to hedge against price risk. The big users have always done this both bilaterally with the supplier and through financial contracts in the market. With the current price volatility, it is difficult to obtain market information – market gossip suggests that it is quite illiquid. That’s been making it quite hard for both generators and large customers to protect themselves against price volatility. When prices are unable to be hedged, the likelihood of higher spot prices and ceiling caps increases. This does not help to moderate volatile price behaviour.

Not all companies can do that, but with all of the solar PV that exists in the market, we are now at a stage where there is technology that can join panels together in ‘mini communities’. This allows the panels to share power between them, and introduces innovative technology to control things, such as pool pumps, and allows for your hot water system to be turned on at 3:00 pm instead of 4:30 pm. All of these measures will save enormous amounts of power. In America, the amount of power that’s saved through these sorts of demand-response mechanisms is at least two times the size of Liddell.

Dr Finkel made 50 recommendations in his report, and in an unprecedented level of agreement, the COAG Energy Council accepted 49. The one recommendation not agreed upon was the Clean Energy Target – work on that is still ongoing. I would not give up on it. When you look at the Finkel Report, there is a lot of information – a lot of relatively small technical measures grouped in with big policy changes. These can be addressed under four headings: ►► reliability ►► security ►► lower emissions ►► consumer rewards.

We can expect huge advances in the distributed energy resource world – there are incentives being designed by some of the market players in order to do this at the moment. The amount of small-scale solar at the start of the last decade was about 100 megawatts – it’s now up to 4,600 megawatts, which is the size of a large power station. AEMO predicts that this will be 20,000 megawatts by the late 2030s.

Reliability is about demand exceeding supply. The main solution to this problem, according to Dr Finkel, is to set a Clean Energy Target, because once industry has certainty, they will invest in more plant, and there will be more supply. There are industry stakeholders with gas-fired plants that are almost ready to go, but they are uncertain about the future, which means that investment is delayed.

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Dr Kerry Schott AO

Source: TransGrid

Another thing the Finkel Report suggests is a generator reliability obligation for all new generators – largely renewables. If you construct a wind farm in South Australia, you will also be required to provide backup dispatchable power so that supply increases at all times due to the new generator. If you are a generator looking to close down, it is suggested that you provide three years notice of closure. The sudden closure of Hazelwood last April took the market by surprise. When a big plant like that closes its doors, the market needs more time to be able to respond. The other recommendation with regard to supply is the formation of a strategic reserve, which AEMO is already acting on. Security relates to obligations on new generators to make sure that they have fast frequency responses to cover outages in the system. Transmission companies have an energy security obligation, and across the grid they have to make sure that there is enough inertia to keep everything moving. Stronger risk management is also required around cyber threats, but also against natural disasters. The way that transmission towers collapsed in South Australia during the storm makes you wonder whether the engineering specifications might need to be reviewed. All of these elements need to be considered.

In terms of lower emissions, we need a Clean Energy Target. We also need to set a future emissions reduction path that is technology-neutral. The way the Clean Energy Target works is to set a threshold, so that if a plant is operating below the target, it receives certificates that can be traded. If a plant is operating right on target, then it does not need to purchase any certificates, as it’s a neutral player. If it is operating above the target – for example, a coal-fired power station – then it will require certificates from elsewhere, which will make the operating costs more expensive. We also need more capacity in the system. This means that we need investment. There is a lot to be gained through the demand-response mechanisms, and also in providing more transparency and consumer choice to allow the public to make informed decisions. In conclusion, there is no one single measure that is going to fix the market. What is required is a mix of demand response, increased dispatchable capacity, better consumer choice and competition, and ongoing reductions in emissions to reach ‘nirvana’ – affordable, reliable, secure, low-emissions power supply.

Dr Kerry Schott AO – Chair, Energy Security Board Dr Kerry Schott is Chair of Moorebank Intermodal Company, is a Director of NBN, and a Director of the New South Wales Treasury Corporation. Dr Schott also chairs the Assurance Board for Sydney Metro, and is a member of the Advisory Board for City and South East Light Rail. Dr Schott was Managing Director and CEO of Sydney Water from 2006 to 2011. Before that, she spent 15 years as an investment banker, including as Managing Director of Deutsche Bank and Executive Vice President of Bankers Trust Australia. During this time, she specialised in privatisation, restructuring and infrastructure provision. Prior to becoming an investment banker, Schott was a public servant and an academic. Dr Schott holds a doctorate degree from Oxford University; a Masters of Arts from the University of British Columbia, Vancouver; and a Bachelor of Arts (first class Honours) from the University of New England. She was recently awarded an Order of Australia and Honorary Doctorates from the University of Sydney and the University of Western Sydney.

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Delivering opportunity to New South Wales and Australia The Port of Newcastle is the largest port on the east coast, approaching 170 million tonnes of trade and more than 4500 shipping movements per annum. It is well placed to support the extensive pipeline of national infrastructure projects planned over the next 10 years and beyond. The port has the capacity to handle more than 328 million tonnes of trade and more than 10,000 shipping movements per annum – that’s more than double its current trade. This presents a significant and ‘shovel ready’ opportunity for state and national economic growth, delivered via the existing deepwater shipping channel and 100 hectares of vacant port land. Geographically, the Port of Newcastle provides a gateway to destinations along the Australian seaboard and a market population catchment of six million. Newcastle is centrally located between Melbourne and Brisbane, and is in close proximity to the key export areas for New South Wales. Optimal road and rail connections provide easy access to Sydney, New South Wales and Queensland, without the capital city congestion. As the world’s largest coal export port, the Port of Newcastle supply chain is recognised as a global leader in driving innovation and continuous improvement from pit to port. In addition to the 161 million tonnes of coal exported per annum, the Port of Newcastle also handles a diverse range of 25 cargoes, including dry bulk, break bulk, project, passengers and containers from its 11 non-coal berths. We have a proven track record in the delivery of complex logistics projects, including the import of: ► railway steel and tunnel-boring machinery for the Sydney Metro

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► ►

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Northwest Rail project wind turbines for wind farms in the Glen Innes region rail wagons that have been placed on the port’s unique berthside rail line, and railed via the national network to Victoria and South Australia fuel imports to support the mining, farming and logistics industries throughout New South Wales.

The Port of Newcastle is being established as the port of choice for wind turbine importers servicing the multiple wind-farm developments located in New South Wales. In 2016– 17, the port worked with Goldwind Australia and its logistics providers to import 70 wind turbines for the White Rock Wind Farm in Glen Innes. In July 2017, the port commenced the import of another 70 turbines, welcoming the first shipment for the Sapphire Wind Farm. The blades measure 63 metres, and are the largest to have been imported in Australia to date. Taking advantage of the port’s large parcels of port-side land, multiple shipments of wind turbines were able to be stored for preassembly and after-hours road transport, saving our customers time and money by reducing handling steps. Port of Newcastle has made significant investment in port roads to ensure that they are capable of transporting Australia’s largest wind turbines from the berth to the adjacent storage area.

The first shipment of wind turbines for Goldwind’s White Rock Wind Farm project starts the journey from the Port of Newcastle to Glen Innes

Port of Newcastle’s expertise extends to the facilitation of shipping, stevedoring and transportation to deliver flexible and cost-effective solutions for the cargo owner. We collaborate with stakeholders across the supply chain to support the unique needs of our customers, and provide seamless supply-chain logistics. The contribution of Australia’s regional ports to Australia’s economy is considerable. For example, the unsurpassed capacity that the Port of Newcastle offers represents significant value to Australian cargo owners and the broader economy. Now is the time for cargo owners to move their operations to Newcastle to benefit from real efficiencies and unconstrained supply chains at a world-leading port. ♦ Contact Port of Newcastle’s Trade and Business Development Team on 02 4908 8200 to find out more.

A N AT I O N A L LO G I S T I C S S O LU T I O N The Port of Newcastle is the largest port on the east coast, handling 170 million tonnes of trade and over 4,500 ship movements per annum. The Port has the capacity to more than double its current trade. It also has 200 hectares of available port land, presenting a significant opportunity for state and national economic growth. Geographically, the Port of Newcastle provides a gateway to destinations along the Australian eastern seaboard. With unsurpassed capacity and connectivity, the Port of Newcastle is ready to support the extensive pipeline of infrastructure projects to be rolled out across New South Wales and interstate.

CONTACT +61 2 4908 8200 trade@portofnewcastle.com.au

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Special purpose vehicles – panel discussion

Westlink M7. Source: Lendlease

Special purpose vehicles Key points: • • •

Special purpose vehicles (SPVs) are a critical success factor for major projects. While SPVs carry ‘all the risk’, they may not always have all the resources needed to perform. There can be a major risk of conﬂicts for non-independent SPV directors.

Panellists: ► ► ► ►

Matt Brassington, Chief Executive Officer, Aquasure Kim Curtain, Executive Director, Head of Infrastructure and Structured Finance Unit, NSW Treasury Ian Hunt, Chief Executive Officer, Moorebank Intermodal Company Charles Mott, Chief Executive Officer, NorthWestern Roads Group

Moderator: ►

Christopher Voyce, Executive Director, Co-Head Infrastructure, Utilities & Renewables, ANZ, Macquarie Capital

Christopher Voyce (CV): We’re going to talk in-depth about Special Purpose Vehicles (SPVs), which manage the delivery, operations and governance of Public Private

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Partnerships (PPPs). My opening question to the panel is: SPVs have all the risk, but not always all the power with these projects; what do you see as the expectations of debt, equity, the client and the SPV management itself on some of these major projects? Charles Mott (CM): To give a succinct answer, the challenge for an SPV is to be relevant and to add value. If the SPV isn’t adding value, it shouldn’t be there. There were mistakes made in the early days when SPVs were literally treated as passthrough vehicles, but they are now far better resourced, have greater capability, and are therefore now fulfilling their true role. Matt Brassington (MB): The expectation is that we make sure that everybody gets what they signed up for: the state gets what it decided it would pay, with the same level of risk that it originally set; the debt providers get all their money back and their interest on time; and the equity guys get the

Special purpose vehicles – panel discussion

return that they signed up for. That’s our challenge, and it’s not always that easy. Kim Curtain (KC): SPVs don’t hold all the risk. Government still holds some of that risk, and other parts of it are passed down to subcontractors – it doesn’t all sit with the SPV; however, it’s good to hear this sort of language being used because it’s exactly what we’re looking for. We’re looking for an active SPV that’s actually going to be there as a partner and work with us to achieve the outcomes we’re looking for. Ian Hunt (IH): Matt hit the nail on the head. What’s interesting is that through the complex bidding processes, expectations are very well understood from the start. They’re all thrashed out in documents that rise a metre off the floor. It’s the SPV’s role to make sure that everybody does what they’ve agreed to do in those documents. In the early days of a project, I think that’s pretty easy, as people are still around and remember what they intended. As time goes by, however, things change, people forget, people move on or circumstances change, and I think that’s where the SPV comes into its own. CV: Looking at the delivery phase of these projects, what are some of the challenges in managing the interface between government, clients, the design and construction (D&C) contractor, and the operator, as part of your role in the SPV? CM: There are multiple dimensions to that question. One of the challenges is to not be crowded out by the necessarybut-voluminous documentation and administration of these projects. They’re very refined and that’s a necessary part of the process, but it’s a danger to let that become the substitute for real engagement, dialogue and identification of issues. MB: I’d endorse that. It is also about making sure that everybody focuses on the detail, because you’ve got to actually deliver exactly what is intended, but also ensure that everyone is looking at the big picture. That is because, as organisations, some of us will be there for 30 years, so if you get into a stoush with someone early on, you’ve got to remember that, actually, you’re going to be ‘living together’ for another 25 years. It’s a bit like a marriage, and you’ve got to communicate, be flexible, and understand where people are coming from. Sometimes, you have to imagine yourself on the other side of the table, asking yourself whether you’d take the same approach they have. You’ve got to facilitate an outcome, otherwise it will be an unmitigated disaster. KC: I agree, and that’s around the point I wanted to make as well, which is that we’re really here to talk about partnerships. This is the Partnerships conference, and it’s not a word I use lightly. The third ‘P’ in PPP is there for a reason, and I think it’s sometimes forgotten. We need to recognise that we’ve all got different perspectives; we’re there for different purposes, and we need to understand each other. It’s important that during good times we develop those relationships – as Matt said, it’s

‘like a marriage’ – so that when times are harder, we have those relationships that have been built up and developed to hold us together. IH: I agree totally, and that is the key – you can make this as easy or as hard as you like. I think it’s the subtle difference between delivering on the project objectives and simply administering the contract. It’s very easy to get into that bad spiral of correspondence that is just administering the contract – saying, ‘This clause says this’ and ‘This clause says that’ – that you lose sight of the thing we need to deliver. I’ve been on both sides of that, and I can tell you that one side’s enjoyable and the other’s not. CV: Kim, you live and breathe the management of projects, meaning SPVs are a big part of your life. From a government client perspective, what issues have you experienced, dealing with all these PPPs and asset companies? KC: There are a variety of them. We’ve got some sectors that are very well developed, where only 20 years ago that industry would have had an SPV that was very different. Then there are some sectors that are new to the game and are still going through that evolution; however, government has improved in terms of the way we work together. It’s important to remember that it’s not all on the SPV; governments need to be a good counterparty, as well. Evidence of this is in successful projects where you’ve got an SPV that is active, engaged and working for the desired outcomes, with an engaged government, contract manager and contract team. We’ve come a long way, but there’s more work we can do on the government side – that’s an area where we’ll continue to improve. CV: Matt, your desalination plant had its share of complexities during delivery. How well was Aquasure equipped to deal with these challenges? MB: There are a few people in the room who were involved more actively than I was, but I’m confident in saying that from Aquasure’s perspective, we were very well resourced and had some very able people. Critically, we had a number of individuals who would not take no for an answer. I say that because we could easily have let the whole stoush just keep on running and end up in court. All that would have done is end in a massive wealth transfer to a bunch of QCs and lawyers. There was a fair bit of that as it was, but in reality, we had a number of people who wouldn’t take no for an answer. We eventually drove an outcome and got a settlement. This outcome came from people in the SPV, a huge number of people outside in the joint ventures, and because of our board. We did have nearly 30 per cent of our equity held by, effectively, ‘the enemy’ – the D&C contractor – during that process. To the credit of all people involved, particularly the then chairman

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Special purpose vehicles – panel discussion

L–R: Christopher Voyce, Ian Hunt, Kim Curtain, Matt Brassington and Charles Mott

and the then directors, they found common ground and kept everybody in the room through all of those discussions. I remember one meeting where I learnt some insults I’ve never heard before, for which I will forever be thankful to that particular director. Critically though, apart from that particular instance, people didn’t get too personal. Everyone in the room helped to drive an outcome. At the end of the day, you can’t actually agree on a compromise and execute it with someone unless you’re in a room together. That was a real lesson – it’s very easy to stay out of the room, on the phone, locked up with your lawyers, but you’re not going to get anywhere like this, and ultimately, we’re all trying to achieve a successful outcome. CV: Charles, you’ve been around major projects for a while. Do you think that the higher-profile problem projects expose the shortcomings, or the strengths of the SPV model? CM: I don’t think that any of the higher-profile problem projects have de-legitimised the value of the SPV and the PPP delivery model. I think that there are a lot of examples of projects, from the outside looking in, that have had seemingly insurmountable issues to address. It’s when the parties engage early, in good faith, and seek together to resolve it quickly, that these issues don’t run on as they have in some instances.

got exactly what they wanted. It is the most successful PPP the Victorian Government has ever entered into, although neither of the two governments since the project has been in the market will ever admit that. CV: Ian, you’re in a slightly different position in that you head a government business enterprise. Did you want to talk a little bit about the Moorebank Intermodal Company and how it’s different to an SPV? IH: I guess the question is, ‘Is it an SPV?’ In the PPP sense it’s not, but it is very similar in many respects – so it’s a form of SPV. Moorebank Intermodal is wholly owned by the Commonwealth as a Commonwealth Government business enterprise, meaning that it’s an arm of government, but at arm’s length from government. It has two shareholders: the Ministers for Infrastructure and Finance, which is a pretty typical model, similar to the Australian Rail Track Corporation (ARTC), the National Broadband Network (NBN) and Western Sydney Airport Company (WSA Co.). It operates under the Public Governance, Performance and Accountability Act 2013.

Take Reliance Rail, for example – it was a very complicated project that was resolved in an effective way. Ian has been part of the Lane Cove Tunnel project, which equally had its issues resolved. Bad project outcomes reflect more on the players than upon the model at the end of the day.

It is similar to an SPV in that it is a single-purpose vehicle with a very clear project objective. Like most SPVs, it’s a company under the Corporations Act, so all issues that relate to directors’ responsibilities and duties are relevant, even though it’s Commonwealth owned. In our case, it is very much like the traditional PPP SPV. It’s a small organisation, structured very similarly to the SPVs that I’ve been involved in, and has very similar project oversight and governance roles.

MB: If you don’t mind me saying so, I’d say that our project had huge amounts of negative publicity and massive cost overruns, but it has been very successful. From the point of view of the customer, the Victorian Government, they wanted to buy a desalination plant for a fixed sum of money, and they

If I could also pick up the point that was made previously – sure, projects do have problems, and both Lane Cove and Reliance Rail were mentioned; however, as engineering outcomes that met what the Government wanted in the first place, they are sensational. Reliance Rail, in particular,

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Special purpose vehicles – panel discussion

delivered the most reliable trains anywhere in this country, enabling Sydney Trains to introduce timetable changes that were unthought-of when the project started. KC: I agree. We’ve looked at some projects, which are made out to be failures, but actually from a government perspective, the PPP structure and the way they’ve been constructed has protected us. Some people look at these examples and think that perhaps we shouldn’t do PPPs anymore, but it’s actually the reason we should do more. These risks are being better managed by the private sector, which protects the state. CV: Moving to the operational phase, Matt, Charles and Ian: how well do you think SPVs are equipped to deal with work across both the construction phase and the operational phase of projects? Is there a transition that you see in staffing and approach through that period? CM: Well, certainly there has been a transition. About 20 years ago or so, SPVs were literally and legally pass-through vehicles. There were little resources applied and a tiny budget resulting in a lot of the heavy lifting being passed to the shareholders. The realisation that SPVs could do more occurred on a whole lot of fronts. The reality emerged that these enterprises were principals under a number of material contracts, and had a lot of legal and legislative obligations to fulfil, which was ultimately the responsibility of directors to fulfil. The model has since evolved into looking at what residual resources are required by an SPV. There are a lot of issues to consider here – refinancing, bond issues and these sorts of things. SPVs don’t typically carry a ‘Treasury Team’, but we do have expert buyers, expert managers, and people who are able to engage at the same level as their counterparts under each of the different

types of contracts that an SPV deals with. I think that’s the transition, and SPVs are better for it. MB: In our case, we have had quite a transition from the D&C team to a different team when we entered the operations and maintenance (O&M) phase; however, in reality, you don’t need to do this because we don’t dig holes and design stuff. We comply with contracts and make sure that other people comply with contracts. The skill sets across different phases of an SPV are quite similar. The main difference in the D&C phase is that you need people who are more attuned to a lively pace of life. The O&M phase is perhaps a little bit more pedestrian. Some of the people who did well for us during the D&C phase simply didn’t want to stay through the O&M phase. It’s not as exciting. We built it. We now just have to send out the invoices every month. There’s more to it than that, but, broadly speaking, that’s the difference. It’s the fact that you need a slightly different mentality in the O&M phase, not necessarily a different skill set. IH: I’ve got a slightly different view on that. I think you do need a different skill set. In my experience, the D&C phase is very well thought-through in the formal bidding process. The effort that goes into getting ready for the D&C phase and overseeing the D&C phase is enormous. The O&M phase, particularly on toll roads in the old days, was something that no-one thought too much about until after opening. Then you get to the point of being the toll road operator and it raises a question: do you invest a whole lot in maintenance to limit the renewal cost later, or do you just let it wear out and spend a lot of money on the renewal? That’s actually a question for the SPV, because the O&M contractor’s view is: ‘I’m not going to spend any money, I don’t

Source: Moorebank Intermodal Company

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Special purpose vehicles – panel discussion

L–R: Christopher Voyce, Ian Hunt, Kim Curtain, Matt Brassington and Charles Mott

need to’, but the SPV and investors need to get that right. What I’ve found is that SPVs need that skill set in the O&M phase, which is much more technical for the SPV than the D&C phase; however, I do agree with Matt that during the D&C phase, the main purpose of the SPV is to administer the contract. MB: I think the difference between the experiences of Ian and myself might be the actual models – Aquasure’s model is quite different. We were put together in the middle of the Global Financial Crisis, so a lot of the things that might have otherwise been left for later had to be addressed up-front, because you couldn’t finance the project without them. CM: I think the composition of the shareholders has changed, as well. When the D&C contractor was more heavily involved, that naturally led to a focus on the D&C phase. Now, with institutional and industrial investors, who have a vested interest in having the asset perform perfectly well for the full concession period, the O&M phase gets all the attention it deserves up-front. CV: Kim, just looking at the operating phase from your perspective in Government, are there any areas where government and SPVs need to redefine roles to help SPVs to operate and achieve the objectives of government more effectively? KC: I think the primary roles themselves are still the same as long as they are focused on the outcomes. I think that we have the same challenge that we were just talking about – often from delivery to operations, we are transferring who’s looking after the project. From a Government side, we need to be smarter in how we transition that. Back to the original point of what the purpose of the project is. Through the delivery and operational phases, we all need to be focused on the outcomes. It’s a matter of making sure we’ve got clarity the whole way through. Also, the skills and experience of the people that are looking after those contracts needs to be consistent through the operation phase, as well as

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through procurement and construction. I think the primary roles themselves are still there. CV: A number of panel members have already touched on the importance of the human factor when interpreting the contracts. It must be a risk that you guys are managing on those sites, on a day-to-day basis. Obviously, different personalities can interpret situations and contracts in different ways. I’d just like each of you to comment on the importance, from your standpoint, of the human factor, and how you go about managing your own people and the counterparty risk. CM: It’s a very intense phase of a project; through construction and delivery, and into operation. The attributes I think you want in your people and their counterparts are competence, and experience. You also want people to be fair and reasonable, and to act in good faith. I don’t think that’s unique to PPPs in particular. What I’ve found to be quite a difference over the years is that competence and experience varies over agencies across governments. So, you’ll have a rail way of doing things, a road way, a defence way, a health way and an education way; you’ll have a New South Wales way and a Victorian way. It changes according to your counterpart, and it reflects the deep cultures within their own jurisdictions and agencies. Responding appropriately to these different approaches is certainly very relevant to PPPs because of the long-term nature of the deals. IH: I think another element of that is people who’ve done it before against people who haven’t. People experienced in this way of delivering have learnt the hard way that PPPs are big and complex, and you can’t always just rely on the contract – you’ve got to rely on the relationship. Reliance Rail is a good example of this, as it was the first PPP that an agency and a major contractor had been involved in. At the outset, it was all about administering a contract rather than getting the trains out. Initially, this created all sorts of issues that were very difficult to deal with. It was only

Special purpose vehicles – panel discussion

when a couple of things happened – such as putting the project into the Transport for NSW transport projects division – that the focus turned to ‘We’re actually here to deliver trains’. In turn, this put the focus back onto ‘How do we do that?’ We got on with it, rolled up our sleeves, and delivered the trains. So, the experience of personnel has a lot to do with that.

every couple of months. Of course, they need some support in understanding what their legal obligations are as directors. A very significant part of the chairman’s and management’s contribution is making sure that when the board meets, they can fulfil their duties. It’s our duty and obligation to do what we can to help them do that. It is what it is. We have found a solution for it.

KC: I think it’s part of the mindset. As part of partnership, it’s about being solutions-focused, rather than just problem-focused. So, from either side, we can always come together and work on an issue and find a solution. Rather than focusing on the problem – who was at fault, who did what and who should be in trouble – let’s focus on working together and finding the answer.

KC: From our perspective, generally speaking, we find that SPV directors are aware of the conflicts – they know how to manage them, and they’re aware of what their duties are. There’s a perception by some people further away from actually seeing the operation of a PPP who believe that the shareholders are going to tell the directors what they have to do, and that they will always act in the best interests of the shareholder. Of course, their primary duty is to act in the best interests of the SPV, and generally, we find that the directors are aware of that and act in that way; however, I still hear some people saying, even for companies when government is a shareholder, that we can just tell them what to do – well if they’re a Corporations Act company we can’t.

MB: I agree with all of that. I don’t have Charles’ track record – this is my first role interfacing with government, and I must admit, I found it extremely odd when I first started because I went to a number of meetings with government and nothing ever got agreed on. Then, I realised that, actually, that’s what it’s like dealing with government, and once I got into that mindset, I realised that at the end of the day, sometimes you’ve just got to stay in the room until you solve the problem. There are occasions where things can get heated, and you have to put your phone down and walk away. The core of it is, you have to respect each other. Sometimes, it’s difficult to resolve things on the telephone, but if you walk into the room, you look someone in the eye, and you have a face-to-face conversation, it’s amazing how that is an antidote to any sort of aggression or difficulty because we’re all human, we’ll find a way though, and when there is a will, there is a way. CV: I just want to move on now to SPV governance. Most of the SPVs are Corporations Act companies, meaning all the directors of the SPVs are bound by certain obligations. From a management perspective, and Kim from a counterparty’s perspective, do you think there’s adequate recognition for the role of SPVs, and do you see any potential for conflict between a director’s duties under that regime and their employment by shareholders? CM: I think that conflict is a reality, and it’s not unusual. It’s entirely normal in the course of business to have potential conflicts, and it’s about just identifying that they exist and having appropriate management measures in place. From an SPV perspective, there’s a lot to be gained by having shareholders of substance who have the knowledge and capacity to support management. I think that the benefits outweigh any disadvantages. MB: If I could provide an example: we have 15 directors, 14 of whom are appointed by the shareholders, leaving one nonexecutive chairman. We have 11 shareholder employees within those 14. Certainly, we have at least six who have a language other than English as their first language. Honestly, we’ve got two directors who fly down from Korea

There still seems to be a perception out there that that’s how companies work. Personally, I think the SPVs that I’ve seen are working well, but it’s more that perception of conflict that’s the broader issue. IH: I agree with Kim. When things go pear-shaped, the directors’ minds are very much focused on solving a problem that could end up in a solvency risk – the Lane Cove Tunnel project was one where they did go insolvent, and Reliance Rail was one that came very close. That really focuses the mind. You can overcome a director’s lack of experience with good advice, both internally and externally. There is great value in some sponsors nominating experienced independent directors as their representative, who bring a wealth of experience. I’m a big fan of independent chairs, for a variety of reasons: for the perception reason we were just talking about, the education of the other directors, and keeping everyone’s minds on what they’re there to do – it’s much easier for an independent chair to do than a shareholder employee. CV: How has the role of SPVs evolved with time? And could you think of two or three examples of things that you’d address either in bid phase or in the procurement of major projects going forward? MB: At the moment, there seems to be, with some projects, a real cutting back of funding for the SPV. I can think of one recent project where the SPV budget is very small and they are struggling to get a good team together as a result. I would counsel against that. I genuinely think that the SPV has got a very significant role to play over the entire concession. If you start out with inexperienced people, you are just asking for trouble. I would encourage government to review that when assessing the model. That would be my major observation.

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Special purpose vehicles – panel discussion

KC: From our perspective, it’s probably two things. Firstly, we are focusing a lot more on active SPVs and active equity when doing our procurement, evaluation and considering who the counterparty is going to be. Secondly, it’s about outcomes and what we’re looking for, and ensuring that both parties are aligned with the same goal. IH: In many PPPs, particularly in social rather than the economic PPPs, there are investors in projects that are becoming specialists in PPP management, and they have a team that might manage three or four small PPPs at once. I’m not quite sure whether I’ve formed a view on whether this is a good thing or not, because I think it’s important to have genuine independence in an SPV; but if there’s a wealth of experience that’s learnt from others, then perhaps it is a good thing.

CM: We’ve made observations in this forum as to how things have changed, I think, for the better over time – particularly more recognition of the real role and responsibility of SPVs. At the same time, the model has been refined across all markets to converge, broadly speaking. I think that there is a cigarette paper between the PPP documentation across jurisdictions by and large. In my experience, it’s more about the attitude to how it’s administered – this has an overwhelming influence. When you get alignment between the executive and political arms of government, you’ve got a commitment to the model at the political level, and you’ve got the executive on board and engaged in delivering to the best possible way. That’s when you get the best outcome.

Matt Brassington – Chief Executive Officer, Aquasure Matt Brassington is Chief Executive Officer of Aquasure Pty Ltd. Aquasure holds the concession from the Victorian Government awarded in 2009 to finance, design, build and operate, for a period of 30 years, the Victorian Desalination Project, which includes the largest seawater desalination plant in the Southern Hemisphere. Formerly, Mr Brassington was Chief Executive Officer of Epic Energy, one of Australia’s largest high-pressure gas transmission pipeline businesses. Mr Brassington is originally from the United Kingdom and trained as a chartered accountant before moving to Australia in 2003.

Kim Curtain – Executive Director, Head of the Infrastructure and Structured Finance Unit, NSW Treasury Kim Curtain is Head of the Infrastructure and Structured Finance Unit at NSW Treasury. In this role, Ms Curtain is involved with all complex service-enabling infrastructure projects in New South Wales, providing commercial and financial advice to agencies and government. Ms Curtain’s team is focused on providing the people of New South Wales with world-class infrastructure and services that are value for money. Ms Curtain has over 20 years of experience across Australia, Asia and the United Kingdom in project finance, procurement, commercial advisory and contract management. She has a passion for social infrastructure and is focused on optimising service outcomes.

Ian Hunt – Chief Executive Officer, Moorebank Intermodal Company Ian Hunt is the Chief Executive Officer of Moorebank Intermodal Company, the Commonwealth Government business enterprise charged with facilitating the development of a major intermodal terminal in south-west Sydney. An engineer by background, he has a long career in major project delivery, including leading the two public-private partnership concessionaires that developed the Lane Cove Tunnel toll road and delivered the 626-car Waratah passenger train rolling stock project.

Charles Mott – Chief Executive Officer, NorthWestern Roads Group Charles Mott is currently the Chief Executive Officer of NorthWestern Roads Group, the owner and operator of Sydney’s Westlink M7 and NorthConnex motorways. Mr Mott has 30 years’ experience in infrastructure development, financing, design, construction, policy, ownership, investment and operation. He is experienced in infrastructure in all states and territories of Australia and New Zealand, the United Kingdom, Europe, Canada and North America. His sector experience includes social public-private partnerships (hospitals, prisons, schools, courts), transport (motorways, toll roads, light rail), power (thermal coal, gas, wind), sports stadiums, tourism (hotel and residential development) and water filtration, gained from the perspective of a consultant (Maunsell & Partners), financier (Barclays Bank), investment banker (BZW), constructor (Baulderstone), developer, investor and operator (Bilfinger Project Investments), fund manager (Transfield Services Infrastructure Fund), institutional investor (BBGI) and policy agent (Infrastructure Partnerships Australia).

Christopher Voyce – Executive Director, Co-Head Infrastructure, Utilities & Renewables, ANZ, Macquarie Capital Christopher Voyce has been the Co-Head of Macquarie Capital’s Infrastructure, Utilities and Renewables industry group in Australia and New Zealand since September 2015, after returning from 11 years as a senior director with Macquarie Capital in the United States. Mr Voyce has more than 20 years’ experience advising corporates, governments and investors on infrastructure mergers and acquisitions, project financing and project development. He has closed over $50 billion in infrastructure financings, fundraisings and acquisitions for a range of clients in the power, utilities, transportation and social infrastructure sectors in Australia, Asia, Europe and North America.

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Engineering the future laingorourke.com

companyfocus

Innovation excellence a driving force for Laing O’Rourke Engineering leader builds its reputation on complex infrastructure projects and collaboration. Laing O’Rourke’s longstanding commitment to innovation is transforming the construction sector, and is creating strong outcomes for clients and communities. The in-demand engineering firm is working on more than 25 major Australian infrastructure projects and has a rapidly growing pipeline of future work. In June 2017, Laing O’Rourke announced an international recruitment campaign to expand its workforce, to meet rising demand for its services. The firm has more than 3000 employees in Australia and another 12,000 in Europe. ‘We are involved in some of this country’s most exciting and complex projects,’ says Dr James Glastonbury, Engineering Director of the company’s Australia hub. ‘These projects will leave a lasting change on our cities and regional areas, and will help millions of people over many decades.’ Laing O’Rourke is part of the Pacific Complete consortium delivering the $4.3-billion Pacific Highway Woolgoolga-to-Ballina upgrade in northern New South Wales – Australia’s largest regional public infrastructure project and the first delivery of the partner procurement model. In Western Australia, Laing O’Rourke and project partner AECOM are delivering the Stadium Rail Project, which includes the design and construction of Perth Stadium Station, and upgrades to East Perth Station and associated rail networks to serve the new stadium.

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In Sydney, Laing O’Rourke delivered the Moorebank Units Relocation Project – the largest single Australian defence capital works project since World War II. The project involved the relocation of 100 hectares of defence assets at Moorebank while preparing site upgrades at the Holsworthy Barracks in the city’s south-west. ‘Laing O’Rourke has brought significant innovation to these and other projects,’ says Glastonbury. ‘Leading with our engineering is very much part of our philosophy.’ The Darlington Upgrade Project in South Australia highlights Laing O’Rourke’s innovation capabilities. The $620-million project, delivered through the Gateway South joint venture between Laing O’Rourke and Fulton Hogan, will involve a bold method of delivery for three of the bridges on the project. The 3000-tonne, 180-metre-long bridges are being built adjacent to the live road corridor, and will be moved into place over a weekend using self-propelled module transporters to minimise traffic disruption – an Australian first for a civil construction project. ‘We have developed a unique delivery method for some of the biggest bridge moves in our nation’s history,’ says Glastonbury. ‘Historically, big bridges have been built in situ, which usually means lengthy traffic disruption. Our approach at Darlington can help cities minimise disruption from major construction and transport projects.’

James Glastonbury

Laing O’Rourke is at the forefront of virtual reality technology in construction. It is using digital tools in the construction of pilot training facilities at the Royal Australian Air Force base in East Sale, Victoria. ‘These tools create an immersive experience to help our client understand layout, design and finishes of proposed facilities without the time and cost of physical prototyping,’ says Glastonbury. Laing O’Rourke is also trialling autonomous vehicles for earthworks projects. It recently worked with a United States firm to develop autonomous controls for large water trucks. ‘It’s early days, but the trial went very well,’ says Glastonbury. ‘The focus is not about replacing human workers; rather, it’s about using latest technology to create more precision in complex earthwork projects, optimise machine performance, minimise fuel usage and enhance safety.’

Creating a culture of creativity As Australia’s largest privately owned engineering group, Laing O’Rourke

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is well placed to drive innovation. ‘We can take a longer-term view than most and focus on where our business will be in 10 or 20 years,’ says Glastonbury. ‘Private ownership makes us nimble; we can develop and apply good ideas to the field quickly.’ Laing O’Rourke is passionate about the potential for ‘constructive disruption’ in construction, and its role in influencing a positive change in the construction sector. ‘The construction sector is not recognised for its innovative practices,’ says Glastonbury. ‘We are seeking to generate a culture of “brave thinking”, rather than one of traditional practice.’ Glastonbury describes the firm’s innovation approach as a balancing act. ‘We absolutely need to deliver projects that achieve the certainty and assurance our clients expect. Within that, we encourage staff to collaboratively explore which project boundaries are fixed and which are flexible. We want staff to constructively explore and reshape the boundaries in engineering construction, to create improved value for all stakeholders.’ The firm’s innovation process, says Glastonbury, is built on collaboration and transparency. ‘We work closely with clients, supply-chain partners and other stakeholders. Good ideas usually get the best traction when born from real-project problems, and everyone works to create and implement a unique solution.’ A large investment in innovation capability is another feature. Laing O’Rourke established the Engineering Excellence Group (EnEx.G) in 2011 to create a multidisciplinary, multinational approach to innovation. EnEx.G brings

A recent trial of an autonomous vehicle

together world-class experts across industry and academia to challenge and change accepted thinking in engineering construction.

businesses in the BRW Top 50 Most Innovative List in 2014 and 2015. No other engineering firm ranked in the top 10.

With approximately 100 subject experts in Sydney and London, EnEx.G acts as an internal innovation lab for Laing O’Rourke, a research and development arm, and a contributor to in-house education programs.

‘Laing O’Rourke has developed a reputation for solving problems differently,’ says Glastonbury. ‘We tackle projects through a unique lens and have a level of engineering-led thinking we believe is among world’s best.’

‘EnEx.G adds another layer to Laing O’Rourke’s innovation capabilities by combining the best disciplinedbased engineering experts from around the world with our outstanding local engineers,’ says Glastonbury. ‘EnEx.G also helps us apply stepchange technologies, such as robotic technology, to construction engineering.’

Organisation culture was reflected in the firm’s top-five ranking in the 2017 Top Graduate Employers list from the Australian Association of Graduate Employers. ‘We attract staff who want to be involved in groundbreaking, creative projects,’ says Glastonbury. ‘From our frontline engineers, to our graduates, non-engineering staff and research centres, there is a constant drive to challenge ourselves and our partners to find a better way.’ ♦

Market validates innovation focus Laing O’Rourke’s innovation focus is achieving strong industry recognition. The firm was named as one of Australia’s top 10 most innovative

To learn more about Laing O’Rourke, visit www.laingorourke.com.

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The things we agree on – panel discussion

L–R: Paul Fletcher, Brendan Lyon and Anthony Albanese

Fireside chat: The things we agree on Key points: • • •

Western Sydney Airport is succeeding because of bipartisan support from Paul Fletcher and Anthony Albanese. Road pricing reform will need even greater bipartisan support to succeed. ‘Smart cities’ are about using information to understand infrastructure and urban planning problems – and testing solutions.

Panellists: ►

►

The Hon Anthony Albanese MP, Shadow Minister for Infrastructure, Transport, Cities and Regional Development, and Shadow Minister for Tourism The Hon Paul Fletcher MP, Minister for Urban Infrastructure

Moderator: ►

Brendon Lyon, Chief Executive Officer, Infrastructure Partnerships Australia

We worked out that there is actually a fairly high degree of similarity between Paul Fletcher and ‘Albo’ right from the outset – remember that this is the work of your staff and not me. The list we came up with is: ► they both like to claim credit for each other’s work ► they both speak with a higher-than-average nasal tone ► they both cut their teeth in student politics at the University of Sydney. Your nearest and dearest staff were the ones who came up with that list.

Brendan Lyon (BL): This is a tremendous opportunity to bring together two people who are both good friends of mine, and good friends of the sector, to have a chat about what’s what in infrastructure, and how we can agree on things that we need to do.

Nonetheless, you were both avid university activists at the same university, at the same time. Paul, you were a worldchampion debater. I think that you left that off your resume Anthony, but it was similar at the time.

This is the brainchild of several telephone calls, not actually with Paul and Anthony, but with their respective chiefs of staff.

The Hon Anothy Albanese (AA): No. I was a brawler.

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BL: World-champion though.

The things we agree on – panel discussion

The Hon Paul Fletcher MP (PF): It’s the dominant wing of the Australian Labor Party (ALP) Camp. BL: Nonetheless, today is a little bit different because we’re going to talk about the things that you agree on. We’ve got a little menu of what those things might be – but remember, this is a non-partisan debate; it’s designed to discover areas where you agree. While this could have very easily been the infrastructure version of the Mayweather and McGregor fight – undoubtedly with the mixed martial artist over here (Anthony), and the Marquess of Queensberry rules on this side (Paul) – in this ring, we want to know where there is agreement, rather than where there is not. The rules of the game are relatively simple. I’ve got a series of questions to ask you. You will respond, and for every partisan comment that’s made, you will have to say something nice about each other. AA: The draft had something else. BL: It did. I was originally going to make them cuddle, but we thought it was a little bit too edgy. AA: I’m in favour of it, but it’s not compulsory. PF: They just want their democratic right to have their say. BL: We are so used to partisan debate at state and federal levels, so the opening question for both of you is: should we take some level of optimism in the fact that you both instantly accepted our invitation to come along and talk to the sector?

Should we take that as a sign of some optimism that, at least in infrastructure, we’re starting to move to an area where there are key agreements? PF: There are agreements in areas of infrastructure and there are also healthy disagreements, but that’s the same across a number of areas. AA: In opposition, you’ll take any opportunity to talk to anybody. BL: Let’s turn now to Western Sydney Airport, and this is one area where there has been a fairly notable degree of agreement, at least in concept. What are the edges of that area of agreement? What do you actually agree on? What is Western Sydney Airport? PF: Western Sydney Airport is a 3,700-metre runway, with a total capacity of 10 million passengers, commencing operation in 2026. Of course, there has been a lot of bipartisan work to get to this point, and I certainly acknowledge Albo and the work that he’s done. I’d also acknowledge Joe Hockey, who did a lot of work on Western Sydney Airport, including with Albo and Scott Morrison, among others. There’s been a lot of good work done. AA: There is pretty broad agreement. There might be differences over where the rail line will be. I think the big difference that’s emerging is rail from day one. Hopefully this dissolves, but Labor sees this as an essential component – and hopefully it will happen. The other thing we agree on is that the Government had a difficult position, not of it’s own making, but of a pretty dumb

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The things we agree on – panel discussion

decision to grant a right of first refusal into the contract. The objective there, of course, was to undermine the chance of the second airport ever happening. I think the Government found a creative way of coming through that and they deserve credit for it. We backed it in – otherwise it wouldn’t have happened.

Sam Haddad was the joint chair with Mike Mrdak – in the end, they didn’t stop it, and we got there through the process.

Western Sydney Airport is the best example of an infrastructure project that needed government and opposition to make it happen. I doubt whether there’s anyone in this room who didn’t think that it should happen, but it happened.

AA: It’s not a consensus view on my side; I’m not going to pretend it is. I don’t support a curfew, and Labor got through an election campaign without having a curfew. I’d also emphasise that there’s a curfew at Sydney Airport, but there were still 4,000 or more take-offs and landings between 11:00 pm and 6:00 am at Kingsford Smith Airport last year. There is a whole range of low-capacity flights that are able to go out through Kurnell, and it’s not an issue. We don’t go out there and advertise that.

PF: Max Moore-Wilton was here earlier. AA: Was he here? He read the itinerary and saw I was speaking. It’s good that he was here. That’s longer than what I said in a previous media release. We were ready to go into government. We’d done a lot of the planning; we’d looked at other options. To Joe Hockey’s credit, in particular, we sat down and worked through things in a constructive way. We had various cabinet processes in place, and we did a lot of research. The truth was that there was someone – one person – who happened to be the Leader of the Opposition at the time, and Joe and other supporters couldn’t guarantee that he wouldn’t just come out and oppose it. Then it would have been opposed by people in my party, as well, and we would have been back at square one. Joe spoke about this in his Valedictory from Parliament. We essentially had an agreement that whoever won the 2013 Federal Election would, for goodness’ sake, get on and do it. Joe always honoured arrangements – he had that reputation, and we got it done. PF: There was one other important piece of work. Having come into it relatively recently, my observation would be that the 2012 study about the aviation needs of Sydney laid out a very credible set of findings about the capacity of the existing airport at Kingsford Smith. AA: When you’re looking at bipartisanship, it’s no accident that this report was commissioned by me in our first term. The chances of New South Wales Labor being re-elected at the 2011 State Election were pretty minimal, and the study was designed with that in mind. It was due to report in March 2011, straight after the election, because I thought it was what you needed at that time. I say that without upsetting the person who, at the time, was the Deputy Premier, who happened to be my wife. We were genuinely looking at other options, but with a Federal Labor Government and a State Liberal Government, I thought that’s what was needed to get this done. And of course, Barry O’Farrell had a different position from Mike Baird and others. He didn’t immediately receive the report, but that was also an example of trying to get those ducks in a row, and of how to stop partisan politics. People in the state bureaucracy were conscious of it;

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BL: Tell us about curfews, because there’s a bit of local pressure, which will be commercially difficult for the airport if it gets out of control.

The benefit of the planning that was put in place by the Hawke Government, and maintained throughout, with pressure on the previous Howard Government and certainly on me to maintain the land at Badgerys Creek. When you first become a Minister, you get a brief – of course, it always recommends immediate finance cuts. They get all the stuff out of the bottom drawers. Item one was to sell Badgerys Creek land, advocated by the Sydney Morning Herald, who said, ‘Why aren’t you just getting on with it?’ I always thought, ‘No, no, no. We might actually need that’. In terms of the processes of the Western Sydney Airport, those protections have meant that you can have take-offs and landings to the south-west, which impact almost nobody. Around Kingsford Smith Airport, houses were demolished. The whole suburb of Sydenham was demolished in my electorate for the third runway at Kingsford Smith. There are about 18,000 homes that needed to be insulated. I don’t want anyone to suffer from aircraft noise unnecessarily, and you can protect people. You can’t have an airport that’s silent; but you can, because of the planning controls at Western Sydney Airport, have an airport with less impact than any other airport in any capital city in Australia. PF: I’d agree with that. I’d add that I’ve visited a number of airports around the world, and it’s reinforced the message to me that every successful airport has a strong community consultation strategy. That’s why we set up the forum for Western Sydney Airport, under the chairmanship of Peter Shergold, who’s obviously a former secretary of Prime Minister and Cabinet, a very eminent Australian, and Chancellor of Western Sydney University. We’ve got 22 other people on the forum, drawn from all of the different regions of Western Sydney. We’ve got Labor politicians, Liberal politicians, Mayors; we’ve got council General Managers; we’ve got businesspeople (quite a diverse range of people), and the intention is that this group will be a very important element of community consultation, especially as flight paths are developed. It certainly will not be the only means of community consultation, I hasten to add,

The things we agree on – panel discussion

L–R: Paul Fletcher, Brendan Lyon and Anthony Albanese

but it’s a really important part of it. Just last week, for example, when they had their second meeting, they had a site visit to Sydney Airport to visit the tower, and just get a sense of some of the issues involved. Part of the thinking there is to build up some expertise in that group of people. Without making any assumptions about their views, these are very technical issues, and the more we can get people with a knowledge base, then the more they can apply their perspective as members of the community, understanding all the considerations of voters. BL: I recently saw a poll saying that 70 per cent of people are now supportive of Western Sydney Airport. Paul, are you seeing that in terms of the meetings and discussions? PF: I’d say that there is extensive support across the local council leadership, for example. Not every council, but a significant number of them. They have a strong desire to be seizing the jobs and economic opportunities that this will bring for their residents. There is a strong interest across Western Sydney. Of course, that’s not something you can take for granted. You’ve got to keep working at it. You’ve got to keep demonstrating progress. I think it’s fair to say that on both sides of politics, there was a degree of nervousness about how a decision to proceed with such a major infrastructure project would be received, but my observation would be that it’s been well received, because getting on a plane is so commonplace in the lives of Australians today – that’s true whether you live in Western Sydney, or anywhere else. People are saying, ‘Great, this is going to be really convenient the next time I have to go interstate to go to the football, or go

to a wedding, or to do the other things that people are routinely getting on planes to do’. It’s clearly linked to the fact that the real price of airfares is now roughly half of what they were in 1990. There are now four times as many trips per year as 25 years ago. In other words, there’s a virtuous cycle between competition and improved availability of air travel and airports. I certainly saw that on a visit to London last year, looking at airports like Luton and Gatwick. There is a real synergy between competition between airports, and competition between airlines. I think that’s one of the policy outcomes that we’re going to get. AA: I flew in from the Gold Coast this morning. I think the Gold Coast is the model for the sort of numbers that you’ll have through Western Sydney Airport, and some of the types of airlines that you’ll have when Western Sydney Airport starts. Western Sydney will evolve into an absolutely full airport, as big as any of the major ones around Australia over time. One of the mistakes, I think, that some commentators make is that they say, ‘Well, but what about the CBD? It’s a long way from the CBD’. That’s because so many opinion makers – and I say this as someone who lives in Marrickville in Sydney’s inner west – think that Western Sydney is Parramatta. BL: Or Pyrmont. AA: Or Pyrmont. It’s 2.2 million people. This is Western Sydney’s first airport, not the second Sydney Airport, and it’s a really important distinction in terms of public mindset. The key issue around there is how to get people from Campbelltown and people from St Marys, and people from the north-west, to work at not just the airport, but the science

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The things we agree on – panel discussion

park, the logistics businesses, and the advanced manufacturing plants, everything along that corridor.

as if every plane at an airport goes in a straight line. That was

That’s the key to getting more and more support for Western Sydney Airport, and I think that the key element will be bulldozers on the ground. I’ve been advocating to Paul privately, but he wouldn’t mind me saying it here: for goodness’ sake, get the earthmoving stuff happening now. Then people will realise it’s really happening.

after I woke him up, ‘For goodness’ sake’. That was a product of

You know, you had Bob Collins out there with the spade in the ‘90s, and you’ve had lots of people out there, a long, long time ago. People even ask Paul, ‘Well, will it really happen?’ As people realise that yes, it will really happen, the support is growing. Although, there was a bit of a hiccup (not Paul’s fault). BL: You don’t have to say anything about that. AA: I’m about to sledge someone else, so it’s bipartisan on this platform. When I saw the Environmental Impact Statement (EIS), the maps had every single plane going over my friend Senator Doug Cameron’s house – literally. There was a line on the map

L–R: Paul Fletcher, Brendan Lyon and Anthony Albanese

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the draft EIS that was circulated, and I said to Warren Truss, a lack of political oversight. PF: Can I just explain what happened there, as well? AA: I was being nice to you. PF: We consulted with the right wing of the New South Wales Labor party. AA: It’s not a joke, by the way. It is actually unbelievable that on the website you could type in your address. Literally every plane was going over his house. Why they did this is beyond me, because you can’t tell now where a plane will be in 2026 – that’s not the way it works. PF: Just to be clear, we have made the commitment that there will be no single merge point over that location, or others. BL: Doug has moved house. PF: It is obviously an important point about taking the community with you, and understanding where the hotspots

The things we agree on – panel discussion

are, and having formal consultation mechanisms so that those issues can be surfaced and worked through. BL: Just before we move on from the airport, is there anything that you would want from Labor, in Opposition, to help with? You’ve got a difficult job to get a very complex project up and running. PF: Other than staying in Opposition? AA: That’s going well for you. BL: Alright, you’re going to have to say something nice now. PF: It wasn’t about him. BL: Come on, say something nice, just be friends. AA: He’s not the problem. He’s an Australian citizen. PF: The engagement’s been pretty good so far. BL: Anthony, is there anything that you need from the Government, from Paul, to make it easier for you to control? AA: Paul has been constructive in terms of appointments to things. It’s good that there are some Labor people on the consultative body. Peter Shergold was a very good appointment as the chair of that, so with respect, that needs to continue in terms of the board. Some of our people in government complained that under Rudd and Gillard, we appointed more conservatives than Labor-aligned people. I don’t think that’s quite fair, but we were bipartisan in our appointments. I appointed people like Bruce Baird and Mark Birrell, both former Liberal MPs, and a range of others. There’s not a very big list from this Government, and they need to understand that Western Sydney is Labor heartland, so there needs to be some people who identify with our side, to be frank about it. But Paul has been very constructive by sitting down and letting us know in advance when things are happening. BL: That’s good. Well, we might move from the airport onto road pricing, which was a fairly big theme of discussion this morning. When we originally put these questions together five or six weeks ago, we were going to note that an area of agreement between you both was the wonder of Italian culture, that your wife, Paul, and your father, Albo, were both of Italian stock. Of course, Section 44 means that we no longer admit or even acknowledge cultural ties. AA: There’s one time in my life to be glad of my immaculate conception. I mean, having no father on my birth certificate. BL: If we did acknowledge those cultural ties, however, one thing we could observe is that traffic congestion in Rome is now roughly similar to what it is in Melbourne and Sydney – we’ve got problems getting funding into the transport projects that we need. We’ve got trouble maintaining what we’ve got. I guess the first question on road pricing is to ask you again, what does it mean to you? Road pricing can be anything to anyone,

depending on the time. PF: The point I’d start with is that people pay to use the roads today. People are paying 41 cents per litre in fuel excise to use the roads today. Of course, if you’re driving a 10-yearold Holden Commodore, that translates to about 4.5 cents per kilometre. If you’re driving a Prius, that’s about 1.5 cents per kilometre. If you’re driving a Tesla, that’s 0 cents per kilometre. Apart from the relatively small number of people who drive a Tesla, you are paying to use the road today. One way that road pricing works is the way we have it today, but there are obviously other approaches. For example, I was recently in Oregon and California, where both states have trials underway. They both have a per-mile gas tax, and they’re looking at whether it makes sense to move to a different system. One of the reasons they’re looking at it is that vehicles are getting more fuel efficient, and electric vehicles are starting to increase as a proportion of the fleet, so the revenue stream that has been a very significant contributor towards the capital and operational cost of roads is declining. We spend $23 billion a year on roads around this country, yet one of the key revenue streams that we’ve relied on is under pressure. That’s one of the reasons different countries around the world are looking at different models, and there are a range of different possibilities. BL: What would you say when people are talking to you about road pricing? What are you thinking in your head: it’s not a cordon charge – it’s something wider? AA: Beyond what Paul said, people pay through their direct taxes to build roads and maintain them. People pay their rates to local government to build roads. The big issue is if you were starting again, the ideal theoretical model is a distance charge. There are a couple of issues though, that you’ve got to overlay over the top of the theory. From my perspective, it’s very much equity. BL: Fairness equity. AA: Yes. Those people who have to drive the furthest in Western Sydney, for example, are those people who have less access to public transport. By and large, that’s the case. They need a car to get around. People who live in Western Sydney don’t just go to the CBD. We haven’t done north–south corridors. How do you get from Campbelltown to St Marys by public transport? We were going to do a Parramatta to Epping rail line when we were in government, and part of that was about getting people from Western Sydney up to the high-value jobs in Macquarie Park and around that area. At the moment, to travel by rail, you have to go into the CBD and then out again; it’s crazy. Before you talk about charges, you’ve got to have modal transfer options, as well. This city will not function as a city of eight million people if it’s just about the private motor car. It’s got to be about both roads and public transport. The issue of toll roads will increasingly be an issue because tolls are imposed

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The things we agree on – panel discussion

on some people depending upon where they live, rather than falling on everyone, so that’s not fair either. We need to have a debate about equity, as well as about how we fund roads, and fund the system infrastructure. BL: For a very long time, the favourite saying of senior transport bureaucrats was: ‘The Minister told me road pricing is the answer, then he asked me what the question was, and said that his or her successor would do the implementation’. Paul, you’ve been quite different, because you have come in and already publicly committed to beginning a public process of inquiry. From what you’ve said publicly, it seems to start with establishing the problem, and looking at the options that might be available. How worried are you about what happens when that’s formally announced? How worried are you about it being viewed as a great big new tax on every kilometre you drive… those sorts of potential wedge-type issues? PF: When Infrastructure Australia’s 15-year plan came

The fairness issues are really critical. There’s a lot of community scepticism – you find that out if you do talkback radio on this issue, as I have. We will appoint an eminent Australian to carry out a study. A key focus of the study is going to be describing the present system, and getting into the equity implications of the present system. Who bears the costs, and the different categories of outer suburban, rural and regional road users? As you’d imagine, the Coalition has a very keen interest in that issue. When we get this study underway, there will be a very thorough examination of how things work, and explaining to people how things work.

out, which recommended that there should be a study into this

BL: What will Labor do when Paul announces his study?

issue, the Prime Minister and I said, when we agreed that we

AA: I’m not allowed to sledge Paul, but am I allowed to sledge the audience?

would take up that recommendation, that it would be a 10 to 15-

year journey if we made a decision to go down this path. That’s a very big if, because it would require both the Commonwealth Government, and the state and territory governments to be satisfied. You couldn’t do it unless there was that agreement, and you’d need to be satisfied that it delivers a better system, and addresses the fairness issues.

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The things we agree on – panel discussion

BL: Yes. AA: I think that part of the problem with the debate is that the advocates in the sector haven’t sold the issue. Sydney’s Cross City Tunnel is fantastic – it saves a lot of time, costs $5 or so, and it’s worth it, unless 20 minutes of your time isn’t worth $5. But everyone is so bloody shy about going out there and advocating it. So, in terms of toll roads, people have got to be prepared to have the argument out there in the business sector. BL: People can conflate tolls and wider network pricing? AA: That’s right. Exactly. That’s part of the problem. My side has been constructive since Paul came out and announced his study. I didn’t quite do a joint media release, but I didn’t bag it, which is frankly sometimes the best you can do from Opposition. Is it uniform? Are there some people in Parliament from all political parties who don’t let a chance go by; if there’s a ball they swing at each one? Yeah, there are. That’s part of the dynamic that we need to address as a nation. The major parties need to wake up to the fact that some of the behaviour from senior people in mainstream politics is what is pushing people to the Greens, One Nation and to the fringes. People are reacting against the yelling and the negativity of things. I don’t think that’s widely recognised yet, but I certainly see it, and I know that there are people in the Government who see it, too. PF: Can I say one thing on the specific issue? The Council of Australian Governments (COAG) made a decision to accelerate the heavy-vehicle user charging process. That’s three per cent of vehicles that weigh more than 4.5 tonnes. We’ve got a couple of technical measures that we’re working on at the moment, and we’re appointing an independent regulator, as well as coming up with an affordable cost base consistent with what’s used in energy and telecommunications, and other utility sectors. We put out a discussion paper on that, and it will be on the agenda at the next Transport and Infrastructure Council (TIC), the meeting of state and federal transport and infrastructure ministers. There is a process underway there, which has been endorsed by COAG. In some ways, because people in the trucking sector are running a business, the notion of paying for an input is understood. I won’t say people love to pay it, but paying for an input is understood, and you’ve seen that obviously in the response of the trucking sector on some specific tollways. People are prepared to pay for tolls because of the time savings it gives them.

That’s not a foreshadowed thing, it’s just recouping money that’s already been spent. I asked when the last increase was, and the answer was eight years prior to that. I asked why that happens. What had happened is that every year, theoretically, a state had an election coming up. In 2002, South Australia had an election coming up, so the South Australian Government said, ‘We’ll stand up for truckies, and we won’t support the increase,’ and the next year, New South Wales said, ‘We’ll stand up for truckies,’ so it wouldn’t happen because one government would say no, and they’d all fall over. We had an increase every year while I was Minister. We had very forthright discussions about what the consequences would be at the dinners held before the formal meetings. ‘Do you want any funding at all next year?’ Just stop playing politics with them, but that’s what you’re up against. There is a temptation there in some ways; it’s always easy to say no. The hard thing is to say yes to a government, or to a federal issue, when you’re a state government. Our election cycles are too short – there’s always an election somewhere. PF: That’s true. Can I make one other point about heavy-vehicle user charging? Apart from the fact that a number of people in the sector have sidled up to me at various points and said, ‘Oh, so you’re the Minister who’s now got responsibility for heavy-vehicle user charging. Well, good luck,’ it’s gone off the rails spectacularly on a couple of occasions. One of the reasons for that is because it was all framed in terms of econocrat jargon, which sounds great in Canberra, but the trucking industry didn’t see an advantage for them in it. To make any significant progress, the industry is going to have to see that there’s something in it for them. I was in New Zealand earlier this year, getting a briefing on their system, and while I was there, I talked to the peak body of the trucking association, who were positive about where their system’s ended up – despite some terrible politics along the way. BL: Paul, if I can just ask you before you move off road pricing, when can we expect you to fire the starter gun on the process? PF: In the coming months, I think we’ll be in the position to announce our eminent Australian and begin. AA: Pending High Court decisions. BL: Indeed. You can re-use the Max Moore-Wilton press release when that happens.

AA: Can I give you an anecdote that shows how difficult this is going to be?

Another area where both of you have been in vigorous agreement is around smart cities, but trying to understand what smart cities are is difficult. I’ve never heard anyone calling out, saying they wanted a dumb or stupid city. What is a smart city?

When I went to chair my first ministerial council meeting in early 2008, one of the issues on the agenda was a heavyvehicle user charge, which is supposed to increase every year.

PF: To me, smart cities are the opportunity to use technology to get better utilisation out of existing infrastructure. Whether it’s managed motorway technology – which has a

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The things we agree on – panel discussion

huge benefit-cost ratio, allowing you to better utilise the asset base of motorways – or whether it’s embedded sensors that pick up maintenance issues, one of the things that struck me (having worked in the telecommunications sector) is that there are more opportunities than we presently take advantage of in terms of integrating telecommunications and roads. I would like to see a situation where, when we put out a contract for a road, part of the contract should be laying optical fibre and building a tower every 20 kilometres. There may be more efficient ways to do it, but I think shared utilities, including embedded technology, makes good economic sense and offers new possibilities.

PF: I’m going to make the point that in four years, we’ve got six million people who can connect to the NBN, up from 50,000 that were connected when we came into government. That means for everybody on the fixed network, you can have internet speeds of up to 70 or 80 megabytes per second.

AA: The key is thinking in advance, so not just, ‘We’re going to build a road’. How do we make it maximise sustainability and linkages with active transport? How do we maximise productivity through use of managed motorways technology? How do we maximise output from that asset? We need to think in advance. We’re towards the end of the panel, so we can afford a little sledge.

BL: I feel like I’m driving you both home and saying, ‘Come on kids, you’ve had such a good day’.

BL: Go on. AA: Smart cities aren’t built on a copper National Broadband Network (NBN); they’re built on fibre and 21st-century technology. To pay my fine, he knows that’s true. BL: You can have a sledge now.

AA: Really? How many people are on the new M4 and M5 now? None. This is where infrastructure happens. They’re experts. Of course, it accelerates when there are more people in there now. PF: When we came to office, $6 billion had been spent and only 50,000 people managed to get connected. Sorry, we’re back in the old way.

I would like to thank Anthony and Paul. They’re people I’ve known for a long time. We are well served by these two in Canberra. When they’re sparring on infrastructure in Canberra, they are fighting for things that we all agree on: like markets, good interventions, good approaches and good relationships with the states. Despite the deeply divided and partisan nature of the political debate, one of the things we should be happy about as a sector is that we have two really strong champions in Paul and Anthony.

Anthony Albanese MP – Shadow Minister for Infrastructure, Transport, Cities and Regional Development and the Shadow Minister for Tourism Anthony Albanese was re-elected as Member for Grayndler at the July 2016 election, and is currently the Shadow Minister for Infrastructure, Transport, Cities and Regional Development and the Shadow Minister for Tourism. Mr Albanese has been a Member of Parliament since 1996 and believes strongly in the need for government to invest in local communities. Following the election of the Federal Labor Government in November 2007, Mr Albanese became the Minister for Infrastructure, Transport, Regional Development and Local Government, and Leader of the House of Representatives. Mr Albanese was named Infrastructure Minister of the Year for 2012 by London-based publication Infrastructure Investor, and in 2010 was named Aviation Minister of the Year for producing Australia’s first ever Aviation White Paper. In June 2013, he became Deputy Prime Minister, and also took on additional responsibility as Minister for Broadband, Communications and the Digital Economy. Mr Albanese is committed to growing our communities in regional and metropolitan areas, and believes infrastructure and transport have a crucial role to play in achieving this.

Paul Fletcher MP – Minister for Urban Infrastructure Paul Fletcher is the Minister for Urban Infrastructure in the Turnbull Government. He entered Parliament in December 2009 as the Member for Bradfield, was appointed Parliamentary Secretary to the Minister for Communications in September 2013, Minister for Major Projects, Territories and Local Government in September 2015, and was appointed to his present role in July 2016. Before entering Parliament, Mr Fletcher was Director, Corporate and Regulatory Affairs, at Optus; established a consulting firm serving the communications sector; and in 2009 his book about broadband, Wired Brown Land, was published by UNSW Press. He has dual first-class honours degrees in law and economics from The University of Sydney and a Master of Business Administration from Columbia University in New York, where he was a Fulbright Scholar.

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Future Building 2017

Articles inside

Fireside chat: The things we agree on panel discussion

Dr Kerry Schott AO | Chair, Energy Security Board

John Pickhaver | Co-Head, Australia and New Zealand, Macquarie Capital

Investment challenges | panel discussion

Dominic Perrottet | New South Wales Treasurer

Special purpose vehicles | panel discussion

Chairman’s Foreword | Adrian Kloeden Chairman, Infrastructure Partnerships Australia

Technology, transport and reform | panel discussion

Restoring Australia’s productivity growth panel discussion