Out-Law Analysis | 24 Nov 2015 | 12:13 pm | 3 min. read
Regional governments have recognised that the country's infrastructure is lagging behind, and are using infrastructure investment as a way of propping up the various states' and territories' economies by the use of public funds.
While governments have traditionally been strong advocates of road projects, we are seeing a shift of focus from roads to rail, with metro systems being built in Sydney and Melbourne to handle the increasing urban density of both cities. Very few Australians live outside the cities and the rapidly increasing population is concentrated in areas where ageing infrastructure has been struggling to cope.
There are grander rail plans too, with talk of a rapid 'bullet' style train line between Sydney, Canberra, Melbourne and Brisbane. That project promises to cut travel time between Sydney and Melbourne to three hours, and would transform the economies of Canberra and Brisbane as well as attracting tourists who would appreciate a vastly easier travel option.
Ports need investment to bring them up to date with international standards, and ensure that goods can be shipped in sufficient quantities. Privatisation of port assets is currently the preferred approach by state governments seeking to ensure the right level of investment in that sector. For example, the New South Wales government privatised Port Botany and Port Kembla in 2013, and the Northern Territory, Victorian and Western Australian governments are currently in the process of privatising the Ports of Darwin, Melbourne and Freemantle respectively.
Another aim of such an approach is to recycle the proceeds of the privatisation process back into the provision of infrastructure.
In the Northern Territory the state government is looking at infrastructure to improve its agricultural capabilities. While the rest of Australia is becoming drier as the climate gets warmer, the North still has a lot of water and real potential as a 'food bowl' for the whole Asia Pacific region. A lot of that food is fresh produce that will be flown out to markets in Asia, but better ports would help this sector, too.
A modern economy can no longer afford to be reliant on cyclical markets like the resources sector. The future economic prosperity of Australia is inextricably linked to the future of the nation's infrastructure: and so little has been spent on the basics over the past 10 or 15 years that there is a lot to catch up on.
It is not all about transport links. Australia needs better schools, hospitals, prisons, social housing and other social infrastructure like water and waste. Telecoms investment is also needed as the national broadband network is slowly rolled out across the country.
Naturally, Commonwealth and state governments don’t have the funding to do these things alone. They will look for private investment to back up their plans, potentially from pension funds here and overseas.
Australian pension fund managers have become more open to both greenfield and brownfield infrastructure investments and to other traditionally risky investments in recent years. These are a valuable source of funding for major projects and have seen significant returns in other markets such as Canada where pension funds invest heavily in infrastructure projects.
That said, governments have learned from past mistakes and do not want to hand over completely to the private sector. Ensuring there is some public investment means that government retains more control, and also benefits from any income from the development.
In the proposed Melbourne metro project, for example, the Victorian government is considering providing a substantial contribution of up to AU$3-4 billion of the $11 billion required for the project. The cost requirement for a project of that size would be too much for the private sector alone. Yet, despite its size, the Victorian government is considering delivering the project under one public private partnership (PPP) next year.
While private finance initiative (PFI) and PPP models are well established and understood, governments in Australia are critically reviewing how new projects should be delivered – novel and/or expanded legal contact models are being considered. For example, governments are now getting private companies to take over, run and maintain housing stock that has already been built by the government itself: just a different development of the existing model.
In summary, Australia has been lagging behind in infrastructure, with its focus elsewhere for the past few years. However, the work is beginning and we will bring the country up to international standards. This is an exciting time, and anyone coming to Australia five years from now will see a very different country, or at least a country making significant infrastructure improvements.
Melbourne-based Greg Campbell is an infrastructure expert at Pinsent Masons, the law firm behind Out-Law.com.