Archive for the ‘Infrastructure’ Category

SCG upgrade establishes precedent

January 31, 2012

The Gillard Government recently announced a $50 million contribution towards the $186 million upgrade of the Sydney Cricket Ground. The other parties are the NSW Government ($86 million) and the Sydney Cricket and Sports Ground Trust ($50 million)

Is federal expenditure of this level justified? Or is it pork barreling? It’s tricky, because the SCG is an iconic piece of social and economic infrastructure, and delivers a lot of benefit to many people.

But the MCG is an icon too. In that case, the $450 million redevelopment of its Northern Stand (2002-2006) attracted no federal funding. The feds had actually offered $90 million (or 20%) towards the total cost, but the then Industrial Relations Minister Abbott sought certain workplace conditions and the Bracks Government declined the offer. The end result is that the Victorian Government provided $77 million and the Melbourne Cricket Club members paid for the bulk of the remainder through higher membership fees. We thus have a precedent in terms of the capacity of members to pay for such expenditure.

And Adelaide Oval is an icon. In this case, the Gillard Government has committed $30 million to help rebuild Adelaide Oval. The SA Government committed $535 million, an amazing amount given that it habitually cries poor on most infrastructure projects. Interestingly, the Prime Minister has been criticised for attempting to buy votes in her home state, while Senator Simon Birmingham (Liberal, SA) dismissed the federal funding as paying for 375 members’ car parking places and free up the state government to install a third replay screen!

And Bellerive Oval is an icon. In this case, the federal government has committed $15 million towards a $22 million upgrade to swing the deal for North Melbourne to play AFL inHobart.

And the tussles over the WACA, Subiaco, Gabba and Manuka Ovals have each experienced uncertainty over who should pay.

In summary, we have Commonwealth funding 68% of Bellerive Oval, 27% of the SCG, 5% of Adelaide Oval and 0% of the MCG. The issue is complicated by many regional sporting grounds being absolute orphans.

The response by the Commonwealth to this inequality of treatment will be that each case is assessed on its merits. This is rubbish, and I will betLondonto a brick that proper cost benefit studies have not been presented to justify recent funding.

It is clear that we must have some ground rules. For example:

  • Commonwealth funding should be capped at around 20% of the total redevelopment costs of major sports grounds. The rationale is that such venues can attract private sector funding and member contributions. The MCG example proves this!
  • Commonwealth funding might rise to 25% for more ‘regional’ sporting facilities where where private sector funding is difficult.
  • State governments should fund an equivalent amount.
  • All funding requests should be supported by cost benefit analyses.

A Memorandum of Understanding containing such principles would stop pork barreling in its tracks, and protect politicians from themselves. It would also provide federal and state agencies and local councils with some surety when planning such facilities.

THIS ARTICLE APPEARS IN THE FEBRUARY 2012 EDITION OF LOCAL GOVERNMENT FOCUS.

Investigate a Tilt Train says Silverhawk

December 16, 2011

The feds are moving to phase two of the $20 million feasibility study for High Speed Rail between Brisbane-Sydney-Canberra-Melbourne.

The phase one report by AECOM puts the construction cost of the proposal at between $61 billion and $108 billion – which is a huge figure in anyone’s language. The sectional breakdowns are a little more palatable however -SydneytoNewcastle($11-18 billion),SydneytoCanberra($11-25 billion),CanberratoMelbourne($20-26 billion) andBrisbanetoNewcastle($20 -41 billion).

Phase two of the study is now going to pin down a preferred alignment and station options, assess the commercial viability (and any subsidies that may be required), potential funding sources and a management model to plan, construct and operate the rail system.

Silverhawk says this is a dead duck. No institutional investor will touch any part of this project given the costs involved, our modest population, the world economic outlook and the lack of infrastructure champions i.e. who in the private sector is matching Minister Albanese’s rhetoric?  

Associate Professor Philip Laird (UniversityofWollongong) has been proposing ‘’off the shelf’ diesel tilt trains capable of 200km. He says the Newcastle-Sydney section is the logical start point. We are also advised that the Sydney-Canberra section, with some straightening of the existing line and a Campbelltown- Mittagong deviation, could be done for less than $1 billion and reduce the travel time by half (to two hours).

Tilt trains are proven inQueensland- theBrisbanetoCairnsroute currently operates at a service speed of around 160 km/h and most Queenslanders are very happy with the service. The infrastructure upgrade to deliver this was a reported $590 million in the 1990s, and a similar amount in the following decade.

Unfortunately, the $20 million of taxpayer funds being spent on the AECOM study is not considering the Tilt Train. We suggest that the ACT Government and councils betweenCanberraandNewcastleshould be lobbying the federal government as a matter of urgency.

P.S. Prof. Laird reports that a recent Canadian assessment of the Quebec-Windsor corridor examined the option of trains moving at 200 km/h as well as 300 km/h.

 

Beware the bolting regions

July 8, 2011

The Grattan Institute (Melbourne) has just released a report recommending that governments should tilt funding towards fast-growing regions.

Titled “Investing in regions: Making a difference”, it argues that government funding should steer away from slow growing regions without sustainable economic foundations, towards ‘bolting’ regions where people and jobs want to go.

The report also recommends that governments should cut funds to those regional universities making a modest economic impact, and subsidise students to attend higher education facilities in capital cities.

It’s all reminiscent of Treasury economists in awe of Adam Smith’s doctrine of following the invisible hand of the market. I guess theGrattan Institutehas only been around a couple of years, and has to make its mark. But peddling these sorts of recommendations is downright dangerous.

 Bolting versus lagging regions

 The fault with the Grattan analysis is that governments are duty bound to help lagging regions to adjust to market shocks and minimise social dislocation and distress. Every developed nation offers subsidies to lure labour-intensive firms into such regions. Examples here are northernAdelaide, northernTasmaniaand more recently the Lower South East region of SA.

 As regards redirecting expenditure, how do you define a bolting or lagging region, and over what period? The report listsCairnsas a bolting region – WRONG because the tourism market has now collapsed and unemployment is high.

 The report also recommends that governments should forget about trying to attract investment into lagging regions on the basis that it’s a lost cause. KeyMurrayBasincities – Mildura, Shepparton,Tamworth, Orange-Bathurst, Albury-Wodonga, Wagga – that are now recovering from the drought are in that category!  

 Infrastructure

 The Grattan report argues that infrastructure investment may only have a limited impact on a regional economy – this is at odds with scores of surveys of investor surveys. The report nevertheless says that bolting regions should have priority for such expenditure – this would consign lagging regions to a permanent state of disadvantage.

 Universities

 The report’s recommendation for a downscaling of regional universities is short-sighted. RegionalAustraliacritically depends on building its skills base and development capacity. Along with Cooperative Research Centres, regional universities could be powerful ‘poles of competitiveness’ (as inEurope). If only we all realised it.

The better solution

Regional development is a messy, imperfect process. The interplay of economic and social factors is complicated by the intersection of local, state and federal politics. The result is a myriad of plans, strategies and programs peddled by scores of agencies.

Regional stakeholders are mesmerised by all this complexity. What they want is recognition and respect, and the knowledge that governments (plural) are systematically building their local economy and institutions. They intuitively know this will help them cope with company closures, droughts, floods, cyclones and the like.

In this context, the regional development approach being pushed by the federal government will hopefully deliver this recognition. It puts the onus on regional stakeholders to focus on their competitive strengths, and to collaborate with state and local government, local businesses, universities etc. to develop sustainable growth paths. It also challenges regions to be persistent!

This is good. These principles should become a permanent feature of regional development policy because it also puts the onus on the federal government to provide decent feedback to RDA applicants. And it sends a message to federal and state agencies to pay attention to projects that:

  • Align with a region’s competitive strengths.
  • Are best practice.
  • Measure up in terms of cost-benefit analyses and business plans.

So I suggest that councils assemble their ideas within this simple framework. Meanwhile, you might read the Grattan Institute report because it might be supplying oxygen to federal and state treasuries looking for cost savings!!!!!

‘The decade of infrastructure’ – quick, write that down!

November 30, 2010

Australian Prime Minister, Julia Gillard, says the next 10 years will be the decade of infrastructure. Nice hype, and it’s a something that local councils should file away for future reference.

Sure she was in a euphoric mood in getting Senators Xenophon and Fielding onside regarding the national broadband network legislation. And she needed a boost to prove she has an agenda. But infrastructure has traditionally been a core part of the Labor philosophy, so we want to see the hype translate into the hard stuff e.g. NSW hospitals, western Sydney rail, disability services, Indigenous health, irrigation systems.

Anyway, our Cockatoo members are getting on with scoping proposals for the federal infrastructure programs in the New Year. We are responding to RDA Minister Crean’s call for cross-council collaboration, and innovative ways of getting infrastructure projects off the ground. We’re finding it hard to get the private sector and state governments to kick the tin – nothing new I guess and the SA government looks like winning our Scrooge Award.

Infrastructure lacks sophisticated development economics…says planning guru

July 4, 2010

Last month, Norm Cameron, Goldfields Shire Council (Vic) argued here for a strong regional development program, including a ‘best cities program’ for the regional cities. We invited Lindsay Neilson, former federal Mandarin and architect of the Better Cities Program of the 1990s to reply.

The Better Cities program had three components in each State – inner urban, outer urban and regional.  The bulk of the money was in metro areas, but there were valuable regional projects in each State. Leaving aside that issue, I agree with Norm that much needs to be done in regional Australia, and this issue will become more important as our national population increases. There seem to me to be some realities that governments are failing to address.

 My recent involvement as a member of the Panel conducting the Inquiry into the Need for a Population Policy for Queensland on behalf of LGAQ has been very interesting.  There is strong metropolitan opposition to rapid population growth, especially in lifestyle areas like the Sunshine Coast, (but it is reflected nationally) but still strong support from regional Australian for more jobs and more people.

 The reality seems to be that the labour demand from the resources boom in WA and Queensland (and it may slow because of the Resource Rent Tax) will result in continued high levels of immigration because our capacity to meet labour demand from local population growth and internal migration is quite limited.  

 The structure of the resources sector, with contracting-out of mine construction and operations, labour supply and worker accommodation and support, means the impacts are not all regionally located – workers Fly-In, Fly-Out from Perth and SEQ, equipment is supplied from Melbourne, repair & maintenance services may be in nearby cities (viz. Mackay, Rockhampton), while the port cities, notably Gladstone, are booming. The boom has metropolitan as well as regional multiplier effects.

 It is highly likely that the Intergenerational Report and the Housing Supply Council have underestimated the rate of likely population growth in Australia off the back of the resource sector’s labour requirements alongside the recent restrictions on the capacity of overseas students to stay in Australia after completing their education. That means, if we accept FIFO labour arrangements for the resources sector, contributions to regional development by that sector are actually well below what they might otherwise be. The Resources Rent Tax, if used appropriately, may provide new funds for infrastructure, but there is a catch, in my view.

 Unlike the Better Cities Program, the Infrastructure Australia funding doesn’t capture multiplier effects – no partnership investment in associated developments is sought. This is a big weakness of the infrastructure sector – too captured by the engineering mentality of individual projects, and the accounting mentality that demands project-based cost-benefit analysis. We thus overlook the lesson that adding related investment to an infrastructure item to produce a ‘development package’ as with Better Cities, draws in private sector investment in a big way. Better Cities ($816 million) has drawn in $5 billion plus state-local-private investment into the precincts (as at 2004) and it’s still happening e.g. East Perth Redevelopment Authority. 

 The general lack of sophisticated ‘development economics’ thought around infrastructure investment is highly disappointing and a step backwards from the Hawke-Keating government’s approach.

 The resources boom will actually add to metropolitan growth pressures, to inflationary pressures on house prices, and to the shortfall of both urban and regional infrastructure.

 And even without the resources boom, Australia at 36 million  may see a Geelong of 700,000 people, a Ballarat and a Bendigo of 300,000 to 400,000 each, and so on.  Planning for these changes still demands a national approach, but there is no sign of this happening – not through Infrastructure Australia, not through the Major Cities Unit, not through any regional development organisation that I’m aware of.

 There are huge challenges in all of this, and they are not on the policy horizon in any meaningful way.

 Best wishes, Lyndsay Neilson (lyndsay.neilson@gmail.com)

Inland Rail is THE opportunity to build capacity, says Silverhawk

October 7, 2009

The Regional Economics Conference (Parkes NSW) in July 2009 saw Silverhawk speaking about the ‘Out of Sight – Out of Mind’ syndrome – or how the Sydney-Canberra-Melbourne triangle forgets those outside it. Other speakers in the session – demographer Bernard Salt and RDA Chair Sandy Morrison – ran complementary themes.

Silverhawk’s basic proposition was that the economic and population stagnation of inland NSW can be turned around. To explain it away to the Drought, the lure of the big cities and the Seachange effect is simplistic and defeatist.

The Inland Rail project is a litmus test. The early analysis is that it is “not financially viable as a standalone commercial entity.” Minister Albanese has thus asked the consultants to now examine how to (a) generate additional tonnages (b) lower capital costs (c) identify funding via different sources.

Re the low rail tonnages, no surprise. There is a serious lack of value-adding industry in the regions – check the trade statistics, or the imported foods on the supermarket shelves! Silverhawk suggested that councils along the route build an agenda with federal and state governments around:

  • Inwards investment missions.
  • Global supply chains.
  • Infrastructure and industry portfolios talking to each other.
  • Development zones and locational incentives (these are not heretical concepts). 

Re lowering capital costs, the cost of the Inland Rail project is around $2.8 to $3.6 billion – the figure might be nearer $2.5 billion if you weed out the ‘cost plus’ thinking. Also opportune to revisit the rail-road tax regimes. If heavy trucks paid full tote odds for the road damage, deaths, pollution, congestion they cause, rail MUST be more attractive.

Re the funding from different sources, the Building Australia Fund and super funds are loathe to finance the public interest. Silverhawk suggested they measure the public interest, and determine an equitable share for each level of government? EXAMPLE – assume the public benefit of the Inland Rail is $500m, and local communities derive $200m of this via rising property valuations, jobs etc. A cost-sharing formula might determine who should pay what along the route. Imagine – Wangaratta ($10m), Albury-Wodonga ($25m), Wagga ($25m), Junee ($5m) Parkes ($15m), Narromine ($5m), Dubbo ($25m), Moree ($10m), Toowoomba ($25m) etc. Then imagine a COAG session with 20-25 Mayors putting the deal on the table.

Infrastructure decisions based on poor financial analysis

October 7, 2009

Henry Ergas (Cockatoo member) and Alex Robson claim in a recent paper that the feds are approving big projects with poor cost-benefit analysis. Moreover, despite the commitment to transparency, very little information has been disclosed on the evaluation.

 Ergas and Robson examined the largest project – the construction of a new National Broadband Network – and found that in NPV terms, its costs exceed its benefits by between $14 billion and $20 billion, depending on the discount rate used. They say it’s inefficient to proceed if its costs exceed $17 billion, even if the alternative is a world in which the representative consumer cannot obtain service in excess of 20 Mbps. The current estimates of the costs the NBN are north of $40 million.

 They also examined the cost-benefit assessment for the second largest project, a rail link in Victoria. They say lower-cost alternatives were not taken into account e.g. increasing capacity via improved efficiency and better governance of the rail network. Even taking that exclusion on board, they say the appraisal approved by Infrastructure Australia is seriously flawed e.g. double counting, manifestly incorrect estimates of benefits.

 They argue for greater transparency, serious audits etc. Ergas’ views will not please PM Rudd and his advisers – Henry is well-connected with the federal bureaucracy and the Liberal Party. Watch this space.

 “The Social Losses From Inefficient Infrastructure Projects: Recent Australian Experience”, A paper for the Productivity Commission Round Table on Strengthening Evidence-Based Policy In The Australian Federation, Canberra, 17-18 August .http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1465226

Australia’s $650 million Community Infrastructure Grants

April 15, 2009

This has come out of the blue – $650 million Jobs Fund announced by the Rudd Government to support local jobs, build skills and improve facilities in local communities. It is part of the Rudd Government’s Jobs and Training Compact – includes three streams:

§          $300m for Local Jobs to invest in community projects of up to $2 million to protect the environment or promote sustainability – $60m for community heritage projects, $40m for commuter bike paths.

§          $200m to Get Communities Working – to invest in local council and not-for-profit projects of up to $2 million to upgrade vital community facilities and build community capacity.

§          $150m for Infrastructure Employment Projects – to be initiated by the Australian Government for  local infrastructure that creates immediate jobs in communities affected by the downturn.

Contact us ASAP for further details!

New Zealand Paint-a-Thon (BEST PRACTICE)

April 15, 2009

 

A wonderful story from Joanna van Walraven, the retail coordinator from Hutt City Council.

 

Frustrated at the shabby run down appearance of the Naenae Shopping Centre, Joanna focused on the resources and assets of the local community. 

 

She organised a ‘Paint-a-thon’ with the aim of painting 20 (roughly half of the shops) using community volunteers and donated paint and resources. The result was an incredible turnout from the community, who achieved a quality job. The shopping centre now looks fantastic.

 

Click here to download an article and photos from the local newspaper.

 

Contributed by Peter Kenyon at Bank of IDEAS

Orange stormwater harvesting (BEST PRACTICE)

March 19, 2009

Cockatoo was in the regional city of Orange NSW last month, where the City Council and Brand Orange are doing some smart stuff in wine, food and tourism, similar to Food Barossa.

Orange (pop. 40,000) also looks like achieving first-mover status in terms of harvesting stormwater. It will be trapped around the city, then treated and supplied to local households – they are currently on level 5 water restrictions! The aim is to for stormwater to supply 60 per cent of Orange’s water.

Council looked at a number of options to increase the town’s water supply and found this the most sustainable and affordable. Orange uses 5,000 ML of water a year. The cost of the stormwater system is around $10 million – it involves gross pollutant traps to remove litter and sediments. The water is captured and transferred to storage, where it is tested and then transferred into the main dams.

The feds have just annnounced $200m funding for stormwater infrastructure. Orange is a marvelous model. Contact us for details of the funding!