Australasian Infrastructure Journal

aij

au

str

alia

n in

fr

as

tu

ctu

re

jo

ur

na

l

volume 1 Issue 2

En

erg

y tra

nsitio

n R

oy

al N

orth

Sh

ore

Ho

sp

ita

l To

ny

Sh

ep

he

rd

P O L I CY C O N S T R U C T I O NR EG U L AT I O NF I N A N C E

ExclusivE!The ‘Godfather of infrastructure’ tells us what the future holds

protEcting assEtsWill the Commonwealth’s guarantee of state debt close the funding gap?

last of its kindThe A$1.1bn Royal North Shore Hospital upgrade and why we won’t see a deal like it again

volume 1

Issue 2

Carbon-neutral opportunityInfrastructure’s winners and losers on the path to the ETS

outsidecover_spread.indd 2 25/05/2009 3:06:19 PM

IFC.indd 1 25/05/2009 11:48:14 AM

www.leightoncontractors.com.au

contents

infrastructurenewsonline.com.au 1

“If we can’t get an adequate resolution to the policy issues that are basically constraining the energy sector in the middle of a global financial crisis then we’ll have no choice but to talk to the government about some other form of assistance”

In this cover story:

Energy Supply Association of Australia CEO Clare Savage

cover story

1.2

20 Flipping the switchTwo-thirds of Australia’s electricity is generated by coal-fired power plants and the electricity industry as a whole emits 200MT of carbon dioxide each year. As we move towards a carbon-neutral economy, find out how government can ease the burden on industry and ensure continued investment in the energy sector

MAnAgIng dIrECtOrMike Shipley

ChIEF OpErAtIng OFFICErGeorge Walmsley

EdItOrLuke Cornish

dEputy EdItOrAndrea Lavigne

Sub-EdItOr James Schwier

dESIgn MAnAgErJacqui Alexander

dESIgnErSBen NgRaymond Ohanesian

SAlES MAnAgErToby Wilcock

MArkEtIng MAnAgErDanielle Tan

trAFFIC MAnAgErStacey Rudd

Subscriptions tel (02) 8437 4731 fax (02) 8437 4753 [email protected]

Advertising enquiries tel (02) 8437 4777 [email protected]

Editorial enquiries tel (02) 8437 4773 [email protected] Key Media Pty Ltd Level 10, 1 Chandos Street St Leonards, NSW 2065 www.infrastructurenewsonline.com.au

Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as AIJ magazine can accept no responsibility for loss

01-05 Contents.indd 1 25/05/2009 11:50:11 AM

mailto:[email protected]


www.infrastructurenewsonline.com.au

1. 02

issue

If all goes according to Prime Minister Kevin Rudd’s plan, Australia will embark on the most ambitious 21st century infrastructure project in the world – the creation of the a$43bn National Broadband Network (NBN). This is a huge gamble, with high stakes and potentially a big pay-off. But is it one the government can win?

It is interesting that this major commitment of taxpayer funds was made before the Commonwealth Government publicly announced the list of priority infrastructure projects it has received from infrastructure australia.

when contacted by aiJ, Minister of Infrastructure Anthony Albanese’s office confirmed it had received the list but said the government would decide when it would be released. His spokesman denied the delay in the release of the information had anything to do with the NBN and that government funding for the largest project in Australia’s history would have no impact on government funding for any of the other projects on Infrastructure Australia’s list.

At a time when the government is suffering from falling tax revenues, the assertion that it can pay for more than half of a A$43bn project without diverting resources from other projects is questionable. A timely release of the Infrastructure Australia list would be appreciated by investors and taxpayers alike.

If the Prime Minister’s gamble pays off and Australia is able to take the lead in a new world order as a result of its citizens having unparalleled Internet access, this will be seen as the best investment since Microsoft secretaries chose stocks over bonuses in the early years of the company. If, however, the project becomes a A$43bn white elephant – overtaken by advances in mobile technology – Australia will be left wondering whether the money would have been better spent on roads, rail and ports.

Regardless, the country’s infrastructure business community needs to know what’s on the Infrastructure Australia list and the real situation with regard to government funding of each item.

Luke Cornish Editor, AIJ

editor’s letter

01-05 Contents.indd 2 25/05/2009 11:50:26 AM


01-05 Contents.indd 3 25/05/2009 11:50:27 AM

www.downeredi.com.au

01-05 Contents.indd 4 25/05/2009 11:50:31 AM

www.hatch.com.au

contents


features

regulars

12 Profile: NSW Minister of Energy Ian MacdonaldMinister Macdonald talks about how Australia’s oldest and most populous state is dealing with the challenges of ageing energy infrastructure

14 bridging the funding gapThe withdrawal of lenders to their domestic markets has left Australia short of funding for vital projects. Will the Commonwealth’s guarantee of state debt solve the problem?

24 true costs of CprSGHD sustainability and climate change consultant Patrick Crittenden explains how companies that misunderstand the Carbon Pollution Reduction Scheme risk more than just higher costs

26 Case study: royal north Shore hospital upgradeThe A$1.1bn upgrade was the last deal done in the pre-GFC climate. It should be used as a textbook example, but is unlikely to be repeated soon

36 ticket to rideInternational projects could provide the insight Australia needs to find alternative funding mechanisms, says Parsons Brinckerhoff’s Mike Jenkins

38 building rightCooperative Research Centre for Construction Innovation head Keith Hampson talks about his organisation’s bid to become the Sustainable Built Environment CRC

42 thailand cradles ppps KPMG’s Graham Brooke looks at how the Thai Government is on the cusp of delivering significant advances in infrastructure development through a groundbreaking PPP framework

2 Editorial

6 news

46 tenders

“The era of high leverage in any form of investment including infrastructure has come to an end and is unlikely to return in the foreseeable future. Leverage is not in itself a problem. Infrastructure projects lend themselves to relatively higher gearing given they normally have long-term stable cash flows indexed to inflation”

In the First person

32 Q&A: Tony ShepherdKnown as the ‘Godfather’ of infrastructure, Transfield Services director tony Shepherd discusses changes in the funding landscape and why the future of infrastructure will be like a blast from the past

26

Tony Shepherd, Transfield Services

01-05 Contents.indd 5 25/05/2009 11:50:42 AM

news


Infrastructure Partnerships

Australia has said the High Court ruling against Parramatta City Council’s A$1.4bn Civic Place development is an indictment on New South Wales legislation regarding PPPs and needs action from the state government. The court ruled against compulsory acquisition of four key properties for the project.

“The ruling of the High Court is a significant blow to Parramatta’s future growth, throwing into jeopardy the continued economic and social development of Western Sydney,” said Brendan Lyon, IPA’s executive director. “This project is a flagship for PPPs by local governments in New South Wales.”

Lyon said that the inability of NSW legislation to deal with the structure of a PPP could jeopardise other projects in the state. “The matter clearly rests with the NSW State Government, who must step in to ensure council can acquire the remaining properties, on just terms, to ensure that this vital development proceeds,” he added.

According to the industry body, Parramatta and the Western Sydney region generate 10% of Australia’s GDP, which was worth more than A$71bn to Australia in 2005. “Civic Place is one of the State’s most important urban renewal projects and will deliver short-term benefits through job creation, but also long-run benefits in terms of underpinning productivity and economic development,” Lyon said.

the leighton led aspire schools consortium has been selected as preferred bidder for the a$1.1bn project to build seven new schools in southeast Queensland. leighton contractors, leighton services, commonwealth Bank of australia and Broad Group Holdings will design, build and maintain six primary schools, and one high school in the Brisbane, Gold coast, redlands and sunshine coast areas.

the project will use the supported debt model, which has been developed based on the credit Guarantee finance model in the uK and Brendan lyon, infrastructure Partnerships australia’s executive director, said this shows the value that can be achieved using the PPP model.

“through this partnership, the Queensland Government will harness private sector expertise to plan, build and finance better schools, at better value to taxpayers,” lyon said. “the successful procurement of this project shows that the right projects will continue to attract private sector interest and investment, in spite of global financial turbulence.”

Queensland needs to fund more than a$107bn in infrastructure in the next 15 years, including more than a$12bn in social infrastructure. lyon said that the size of this investment means it is simply beyond the capacity of Queensland taxpayers to deliver on these projects.

“Harnessing private sector expertise and investment will allow Queensland to continue to deliver important social infrastructure, like schools, in the rapidly growing southeast much more quickly than if it was left to shrinking government revenues,” he said. “Public Private Partnerships have been shown time and again to deliver significant cost and time savings to governments, with cost savings of up to 30.8% over traditional government-delivered projects.”

Pre-construction activities have already taken place, according to Queensland treasurer andrew fraser, who said that two of the primary schools will open as early as January 2010. three more primary schools are due to open in 2011, while the remaining facilities should be completed by 2012.

New South Wales PPP legislation inadequate: IPA

Leighton consortium wins schools PPP

Brendan Lyon

06-11 News.indd 6 25/05/2009 11:52:05 AM

Leighton consortium wins schools PPP

06-11 News.indd 7 25/05/2009 11:52:05 AM

www.abigroup.com.au

news


Bovis Lend Lease has been awarded two of the New South

Wales Building Education Revolution contracts for the upgrade of 380 government schools. The projects are part of the Commonwealth Government’s Nation Building – Economic Stimulus Plan and have a combined contract value of A$675m.

As managing contractor, Bovis Lend Lease will be responsible for the design and construction of new facilities and refurbishments in the Northern Sydney region (130 schools in a contract valued at A$275m) and the Hunter & Central Coast region (250 schools in a contract valued at A$400m). The 20-month project is set for completion in December 2010.

Bovis Lend Lease’s Australia chief

executive, Tony Costantino, said the company is delighted to be partnering with government and the education sector to deliver these important education infrastructure projects.

“Bovis Lend Lease has a demonstrated capability in rolling out capital works programs across multiple locations that deliver procurement, design and cost efficiencies,” he said.

Bovis Lend Lease’s bid was helped by its background in delivering multiple location education projects as it was the design and construction contractor for about 300 new preparatory schools in Queensland. It is also currently managing contractor for the upgrade of about 600 science labs across 105 schools in New South Wales.

Bovis secures multi-million NSW education contracts

Prospective bidders have lodged expressions of interest with the

Victorian Government for the toll-free Peninsula Link, with the government eager to start the project by the end of the year.

The project will be delivered under an Availability Public Private Partnership

(PPP), where the government will make periodic payments to a private company based on key performance indicators – not just traffic volume.

The Minister for Roads and Ports, Tim Pallas, said the Availability PPP model would ensure the road remained toll-free while harnessing the benefits of

private sector involvement, including faster delivery and the use of innovative construction techniques similar to those on EastLink.

“Under this model, the government will make periodic payments to a private company based on key performance indicators – the model is not based on traffic usage and instead seeks the greatest road performance for the community with the best value for money,” he said.

The project is slated for completion by early 2013 with early works at the Lathams Road overpass to be started before the main contractor gets involved by the end of the year.

Pallas said the Environment Effects Statement for Peninsula Link is expected to be completed around the middle of this year, and will determine the range of social and environmental mitigation measures in the final project.

Bidders line up for Peninsula link work

minister of infrastructure anthony albanese has renewed the major Project facilitation (mPf) status of meo australia’s timor sea lnG and the tassie shoal methanol projects.

under the program, the department of infrastructure provides the project with a facilitation service to achieve quick and timely assistance from the government.

the company’s projects involve developing gas accumulations in close proximity to tassie shoal, an area of shallow water in the Bonaparte Basin, which is approximately 275km northwest of Darwin.

meo is currently conducting further technical appraisals of its exploration lease adjoining tassie shoal, as well as approaching potential gas suppliers in the region in an effort to secure suitable feed gas for the projects.

Timor Sea project’s MPF status renewed

06-11 News.indd 8 25/05/2009 11:52:07 AM

news


Detailed planning work on the final stage of the

Bunbury Port Access Road and the first stage of the Bunbury Outer Ring Road has commenced following the Rudd Labor Government’s decision to bring forward the necessary funding. This decision is designed to ensure the new roads are open to traffic by the middle of 2012.

The Federal Government has set aside A$136m for the project, with the Western Australian Government providing a further A$36.3m. “The current global economic recession will not stop us investing in the infrastructure vital to Australia’s long term economic prosperity,” said Anthony Albanese, the Minister for Infrastructure.

“Bunbury’s new Port Access Road and Outer Ring Road are two major projects being funded by our record A$26.4bn Nation Building Program which is delivering and maintaining vital road and rail infrastructure in every region of Australia.”

The planning process – expected to be completed by the end of next year – will involve detailed design, geotechnical investigations, environmental assessments and land acquisition.

Leighton Contractors and Macmahon Contractors have been chosen to build BHP Billiton’s A$500m Rapid Growth Project 5 in the Pilbara region of

Western Australia. The contract calls for Leighton and Macmahon to build 220km of heavy-haul rail line and install 840km of fibre optic cable.

The rail upgrade is on the back of BHP’s A$6.8bn expansion of its Pilbara iron ore operations, which is going ahead despite expectation that contract negotiations with Chinese steel mills will see miners give up most of the 90% increase in prices they saw last year.

The project will double the transport capacity of BHP’s Mt Newman rail line. It also includes building a 1,000-room work camp, 1.3 million cubic metres of earthworks and constructing 10 bridges. Work on the project has already begun and is expected to be completed by the second half of 2010.

BHP awards A$500m Pilbara rail contract

Government fast-tracks Bunbury road plans

the Queensland co-ordinator general has given the A$35bn Australian Pacific LNG (aPlnG) project the go ahead to conduct an environmental impact study by declaring it significant.

the project is for a large coal seam gas (CSG) to liquefied natural gas (LNG) project, which will ultimately result in investment in the order of a$35bn in Queensland through to 2020.

aPlnG is co-owned by origin and us-based conocoPhillips, which bought a 50% share in the joint venture company for a$9.6bn in august last year. the project calls for the construction of

a four-train csG to lnG project in Gladstone.

origin will be the upstream csG operator and conocoPhillips the downstream lnG operator, with the joint-venture company to market the lnG. The first two LNG trains are planned for 3.5mtpa each, with first production by 2014.

the existing gas supply agreements in origin’s csG business will be part of the joint venture, including contracts to origin energy on their existing contractual terms. origin will also provide a market for ramp-up gas that may be produced in the development phase of the project.

A$35bn Australia Pacific LNG project given the green lightAnthony Albanese

06-11 News.indd 9 25/05/2009 11:52:09 AM

news


Origin acquires Wind origin has acquired wind Power and its portfolio of wind farm development sites in Victoria. this move increases origin’s access to a wind development portfolio by 1,460MW to more than 2,000MW.

“the acquisition strengthens our development expertise in wind and complements our capabilities in power project construction,” said Grant King, origin’s managing director.

“we have long supported the federal Government’s policy response to climate change and the acquisition of wind Power will assist in meeting our obligations under the expanded national renewable energy

target to ensure 20% of australia’s electricity is from renewable sources by 2020,” King said.

wind Power resource sites include its 484MW Stockyard Hill Wind Farm located

near Ballarat, which has an estimated capacity factor of 40%. Origin first entered the wind sector earlier this decade when Australia’s first commercial wind farm was opened at codrington in Victoria – with the offtake fully contracted to origin. the company now has more than 390mw of wind capacity under long term Power Purchase agreements.

“with the expectation of higher renewable energy targets, origin commenced its own physical build and has an extensive portfolio of wind options with high capacity factors in good locations in nsw and Victoria,” King said.

Perth-based wave power company Carnegie Corporation has entered into a heads of agreement deal with US bank Investec to develop the A$250m

Commercial Demonstration Wave Power project.Investec will provide or procure the funds for the project, which will be

developed by a special purpose vehicle created by the two companies and others investors. This would be Australia’s first wave energy project and the location is set to be announced in the middle of the year.

Investec will also secure the first right of refusal for three years to finance Carnegie’s CETO projects that connect into the Australian National Electricity Market and in New Zealand.

The CETO system is different from other commercial wave energy projects in that it operates out of site, being anchored to the ocean floor. An array of submerged buoys are tethered to seabed pump units. The buoys move in harmony with the motion of the passing waves, driving the pumps, which in turn pressurises seawater that is delivered ashore via a pipeline.

The high-pressure seawater is used to drive hydro turbines, generating baseload, zero-emission electricity. It can also be used to supply a reverse osmosis desalination plant.

Carnegie signs A$250m wave project deal

Pangaea Resources has sold its Queensland coal seam gas

tenement, known as ATP 788P, to Origin Energy in a A$660m deal. As part of the agreement, Origin will also establish a joint venture with Pangaea Resources for exploration of the ‘Deeps’ area of the tenement.

Origin said it would use the gas produced from the tenement either for its planned A$35bn LNG project or sold on to the domestic market. The tenement is located next to proven CSG fields in the Undulla Nose Region.

Baker & McKenzie partner David Ryan said the transaction involved some interesting issues surrounding the declaration of potential commercial areas over the tenement. Baker & McKenzie acted for Pangaea Resources on the deal.

Pangaea sells CSG tenement for A$660m

Grant King

06-11 News.indd 10 25/05/2009 11:52:13 AM

news


Infrastructure investment by the Victorian Government is expected to reach a record

A$7bn in 2009-10 and average A$4.4bn each year between 2010 to 2013, according to its annual budget.

The state government has plans for large projects in transportation, public housing, health and schools to be co-funded by the Commonwealth under December’s Nation Building – Economic Stimulus Plan, ANZ said in an analyst statement.

“This budget is expected to provide a blueprint for other states, with other governments likely to announce significant infrastructure spend, and thus sharply larger cash deficits,” ANZ economist Alex Joiner said.

“The government has front-loaded its infrastructure spend to this and next fiscal year, which will help buffer Victoria from the likely sharp slowdown in private demand and indeed may be the primary reason behind the government’s positive growth forecasts for 2009-10 and 2010-11. This strategy also allows the government to formulate a credible debt reduction strategy, with state debt, as a share of GSP, expected to commence falling by 2012-13 as infrastructure investment is wound back.”

Joiner said the sharp deterioration in the cash deficit is largely due to the government’s decision to pull forward the infrastructure spending. Net debt is expected to rise from 0.8% of GSP (A$2.2bn) in 2008-09 to peak at 5.3% of GSP (A$15.7bn) in 2012.

Victoria’s strong budget prompted ratings agency Standard & Poor’s (S&P’s) to release a statement supporting the state’s AAA credit rating. In its statement, S&P suggest that the government net financial liabilities to operating revenue ratio will rise to 119% by 2013 – well short of the 130% level that would prompt a rating review.

Victoria plans record infrastructure spending

Pangaea sells CSG tenement for A$660m

06-11 News.indd 11 25/05/2009 11:52:21 AM

www.abergeldie.com

IntervIew Ian Macdonald

InfrastructurenewsonlIne.coM 1212

W ith the fumbled handling of the privatisation of New South Wales’

electricity assets having already cost Premier Morris Iemma his place at the head of the Labor party, the pressure is now on Premier Nathan Rees’ government to ensure that Australia’s biggest state is able to generate private-sector investment in power generation.

The current Minister of Energy, Ian Macdonald, says the framework is there and that new investors are already showing interest in the state. “The New South Wales Government has already put in place the framework to encourage the development of new generation,” he tells AIJ. “The primary objective of the government’s energy reform process is to optimise the conditions to ensure private sector investment in generation capacity in New South Wales is adequate, economic and timely.”

He says that over the course of last summer, there was around 1,100MW of new gas-fired generation installed in New South Wales – at Tallawarra near Wollongong and at Uranquinty south of Wagga Wagga. There is also a further 660MW currently under construction at Colongra on the Central

AIJ talks to NSW Minister of Energy Ian Macdonald about the challenges facing one of Australia’s most energy-hungry states and how they will be overcome in a low carbon world

player Power

sour

ce: a

aP

IMa

Ge

12-13 Q_A_IanMcDonald.indd 12 25/05/2009 12:05:23 PM

IntervIew Ian Macdonald

InfrastructurenewsonlIne.coM.au 13

Coast, which is due to be commissioned before next summer.

“It is through the actions of the government putting in place the frameworks to support these types of investment that we are confident additional generating capacity will be constructed, as and when required, to meet growing demands for electricity,” Macdonald says.

World firstMacdonald believes New South Wales is a leader in the push towards carbon-free energy generation, having implemented the first emissions trading scheme in the world in 2002 in the form of the Greenhouse Gas Reduction Scheme [GGAS].

“GGAS provides financial incentives for existing generators to reduce their greenhouse gas emissions as well as encouraging greater output for low greenhouse intensity generators and the construction of new low greenhouse intensity generators,” he says.

Macdonald states that the government has also established the Clean Coal Fund to support the demonstration and deployment of carbon capture and storage technologies, and the Renewable Energy Development Fund to support prospective emerging renewable energy technologies.

However, he firmly believes that the Commonwealth’s Carbon Pollution Reduction Scheme (CPRS) will achieve the necessary greenhouse gas emission reductions in the least

costly manner, whether this will be through moving towards carbon neutral power generation or other means.

“Through GGAS, the NSW Government has already provided incentives for a move to lower greenhouse emissions from power generation, and GGAS has acted as a precursor to a national scheme,” Macdonald says. “Setting renewable energy targets and establishing the NSW Energy Savings Scheme will also assist in reducing the need for fossil fuel-based generation.”

NSW Premier Rees recently indicated that his government is preparing to establish a number of renewable energy precincts to support the further development of clean energy technologies in the state. Precincts are proposed to be established for both wind and solar energy generation, and the government is also looking at a range of related initiatives that will be a direct benefit to new renewable energy.

NetworkingOne piece of the equation often overlooked by the public is the need for a strong transmission network to cope with ever-increasing energy demand. Macdonald says that, although New South Wales has an extensive and highly reliable transmission network, continued investment is being made to secure Sydney’s electricity supply. The need to increase the capacity of the harbour city’s network has been highlighted in the past couple of months, with a number of blackouts affecting the CBD.

“Transgrid, as the owner and operator of the transmission network, is undertaking significant investment to further upgrade the capacity in NSW,” Macdonald says. “The ring of 330kV lines around Sydney is being upgraded to 500kV to support future increases in electricity demand. A range of other line upgrades are either underway or planned to maintain the high level of security that the businesses and consumers in New South Wales expect.” AIJ

InfrastructurenewsonlIne.coM.au 13

Member of the nsw legislative council •since 1988

currently nsw Government Minister •responsible for Primary Industries, state development, Mineral resources and energy

Minister for agriculture (2003-04)•

Minister for fisheries (2003-04)•

Minister for natural resources (2005-07)•

Parliamentary secretary (1999-2003)•

Member of the legislative council’s state •development committee for 11 years

Member of the Procedures committee •since 2003

working closely with Premier nathan rees to •ensure that nsw is leading the nation in the development of vital clean coal technology

Ian Macdonald biography

“We are confident additional generating capacity will be constructed, as and when required, to meet growing demands for electricity” Ian Macdonald

12-13 Q_A_IanMcDonald.indd 13 25/05/2009 12:05:23 PM

Mindingthe gap

Feature Funding gap

inFrastructurenewsonline.com.au 14

14-19 Protectionism.indd 14 25/05/2009 11:53:22 AM

Financial institutions are widening the funding gap in Australia by focusing on their domestic markets. AIJ looks at the impact of the Commonwealth guarantee of state debt

toxic assets have decimated the balance sheets of many of the Western world’s

leading financial institutions in the course of the global financial crisis, forcing many to turn to their governments and ask for help to stay keep afloat. Whereas laissez faire policies allowed these financial institutions to become global behemoths, the government bailouts mean that their boards now have to deal with political concerns on top of commercial returns.

In a time when there is not enough credit to go around, there is a concern that newly nationalised financial institutions will retreat to their home markets, hindering any recovery that could take

place. Research conducted by market data company Dunn & Bradstreet (D&B) suggests this form of protectionism could be even more damaging than America’s Smoot-Hawley Tariff Act, which restricted trade and exacerbated the Great Depression.

The D&B report said that such protectionist policies can be the result of explicit direction of credit by governments providing aid to banks under public pressure to ensure that taxpayers’ money is well spent. “Perhaps the most insidious threat is presented by the rise of what UK Prime Minister Gordon Brown referred to in Davos as ‘financial mercantilism’,” the report said. “In addition, governments could favour domestic entities when deciding on bailouts or through discriminatory regulation.” It then cites Swiss regulators as having introduced a new capital regime that favours domestic loans by excluding them from a measure of the capital banks need to maintain, while foreign loans count in full.

Feature Funding gap



Feature Funding gap


Policies that encourage financial mercantilism include explicit direction of credit by governments providing aid to banks, under public pressure to ensure that taxpayers’ money is ‘well spent’.

Relationship fundingANZ head of infrastructure Mike Cleary says that, with limited space on the balance sheet, Australian banks have been focusing on funding projects with project partners with whom they already have a relationship or can build a new relationship, adding that banks are looking for more than just a return on their investment.

“If you had a project where there was a sponsor that has strong relationships with banks, a global player for example or a very strong domestic player that has a lot of different corporate connections, the sponsor will tend to attract more debt to the market than, for example, a financial sponsor,” he says. According to Cleary, a project sponsor without the prerequisite relationship could attract between A$400m and A$500m for any one project whereas a major international player might be able to secure up to A$1bn because banks recognise the value in doing business with the client.

“They’re saying we want to get the right return on our debt and we also want to do other things with these people whether that’s transactional banking or some financial markets business or foreign exchange or even just superannuation,” he says. “All these other bits of business become more and more important so when banks allocate their balance sheet out to people they’re more likely to give it to people where they can have a longer term broader relationship rather than just having a debt relationship.”

However, even a strong relationship is not enough to encourage lenders to wade into projects that hold greenfield patronage risk, Cleary says, with new toll roads or railways unlikely to attract much attention. “It would have to have very conservative assumptions to get interest from banks and even then there’d be some that just say: ‘We’re not interested’,” he says.

On the flipside, banks are gravitating towards the lower risk projects that offer a strong cashflow backed by the government. These not only include traditional PPP projects like hospitals, prisons and schools, but even some road projects. The Victorian Government is planning on paying the project company that wins the Peninsula Link on a patronage basis.

“There will be slight differences in operating risk, but at the end of the day there will be relatively secure government-based cash flows so the issue will really boil down to who the sponsors are behind the project,” Cleary says. “I think that if it’s a financial sponsor they’ll struggle to get large amounts of debt if it’s an industry sponsor that has lots of connections and relationships with banks they’ll find it easier to raise debt.”

government guaranteeThe Commonwealth has responded to the lack of financing available for major infrastructure projects by promising to guarantee state borrowings, allowing states to source more funds at lower prices for vital projects. This move has been welcomed by Infrastructure Partnerships Australia, which says the unprecedented challenge created by worsening credit markets makes the move both timely and productive.

Mark Birrell, chairman of Infrastructure Partnerships Australia, is calling upon state governments to look into a new funding model to help overcome the current shortage in available capital. “We urge state governments to announce their plans to instigate an appropriate co-lending model to meet short term challenges for private sector debt. This co-investment should be on commercial terms, reverting to a pure PPP model over time,” he says.

Mark Birrell, Infrastructure Partnerships Australia

“[A greenfield project] would have to have very conservative assumptions to get interest from banks… even then there’d be some that say: ‘We’re not interested’”mike cleary anZ


Mark Birrell, Infrastructure Partnerships Australia


www.jemena.com.au

Feature Funding gap


the current economic climate means that funding for major infrastructure has been dramatically constrained and is now threatening to prevent the delivery of a number of major infrastructure projects. this, in turn, further slows the economy, increasing unemployment and preventing essential social and economic infrastructure projects from proceeding. in this climate, we need to marshall funding from every available source to maintain the flow of deals to deliver much needed infrastructure.

governments both in their role as clients and as a provider of major infrastructure need to consider what contributions they can make both in the short and in the longer term to ensure that there is the availability of funding to allow infrastructure projects to get the go ahead.

acquiring debt for ppp projects, such as toll roads, will remain difficult in the foreseeable future, yet some governments are starting to look at viable solutions to overcome this.

the Victorian government is currently calling for expressions of interest for the peninsula link, a road project linking eastlink and the mornington peninsula, under an availability ppp model. under

this arrangement, the successful private sector proponent will design, build, finance, operate and maintain the road over a specified concession period. rather than relying on tolling revenue to pay for the road, the private party will receive quarterly service payments from the state over the life of the concession period. such payments may be reduced if the private party fails to comply with certain key performance indicators. abigroup is in the process of preparing an eoi for this project.

The benefits to this approach are clear – it offers good value and risk mitigation to the government and the australian people, as well as an immediate stimulus to the economy and the provision of much needed infrastructure for the community.

in spite of the current economic situation, ppps still offer good value for money while lessening certain risks for the client. ppps are increasingly being used to deliver infrastructure, including hospitals, schools, desalination plants, research facilities and roads. as a model, it offers greater discipline resulting from a focus on service, whole-of-life costing and a surety of delivery.

Funding PPPs Birrell says that the guarantee will help the

states keep their commitment of A$195bn in capital investment over the forward estimates period. “The government’s commitment will help return certainty to the state bond market. Australia already faces an infrastructure deficit and we must ensure there is continued investment in our productive capacity in spite of the global financial downturn,” he states. Birrell believes this will require a full mix of funding options from tax revenue, debt and private funding, although the international economic conditions are hurting all three.

John Martin, head of structured finance at RBS, believes that the Commonwealth guarantee is “pretty momentous”, saying he now takes comfort that the states that have to procure infrastructure can finance it themselves.

“The difference between what the states are able to borrow at reasonable margins with the guarantee versus without it is just enormous,” he says. “You can see it with the banks, they were really struggling to raise money and then they got the Commonwealth guarantee and suddenly they’re doing billions of dollars of issues and the states will find the same thing.”

Rob Ward, who works with Martin on the structured finance team at RBS, says the two key factors that make the guarantee such a good deal for the states are volume and tenor. “Even if the gap were A$500m to A$1bn, the states now have the capacity to plug that gap and plug it in whatever way they now think is necessary,” he says.

Ward believes the different states will explore different ways of leveraging that newfound liquidity, with some looking at conducting a lending arrangement on commercial terms and others looking at permanent subsidies or other aid methods. He says that the states will still be able to achieve the benefits that go along with the PPP model, namely risk transfer, innovation, better timing and better performance.

First testThe first test is likely to come before the end of the year thanks to the A$3.1bn Victoria desalination plant. The project, which has two bidders, is so vital to the Murray River Basin region that it cannot afford to be ignored and will have to be financed one way or another.

Industry sources say the funding gap of the project is likely to be in the region of A$1.5bn and there is speculation that Victoria may use the

Scott Alison is managing director of Abigroup Asset Developments and heads up Abigroup’s involvement in PPP/PFP and structured finance projects


Feature Funding gap


government guarantee to raise part of the missing funds. Even if state governments do not resort to using the guarantee, Martin says that pricing on all their bonds will come down.

“You’ll see that strange conditionality where the states can still do unguaranteed deals but those will go at much better margins because now you have this formal support where if the states ever need to borrow money and their rating goes down the toilet they can just get it from the Commonwealth,” he says.

“Some will borrow the money and put it straight into the project without the PPP process and others will choose to co-lend on them. Victoria has stated that if they get the contractual arrangements and the equity attached to the PPP

and all they have to do is put some equity in for the short term just to bridge the crisis then they’ll feel like they’re getting 90% of the PPP gains – and they’re right.”

Cleary thinks that states will still want to keep tight control over their spending, saying that the guarantee is “probably not going to make a huge difference” but that the move by the federal government will give states the ability to deliver projects they are already committed to.

“For example, the New South Wales Government has said it’s got funding available for the first stage of the Sydney Metro project which I think is A$4bn or A$5bn. They may have struggled to come up with that if they didn’t have access to the federal government guarantee but now with that coming in that should enable them to go ahead and take care of those kinds of things,” he says. aij

“Now you have this formal support where if the states ever need to borrow money and their rating goes down the toilet they can just get it from the Commonwealth”John martin rBs


www.tendersearch.com.au

cover story

infrastructurenewsonline.com 20

For a country so dependent on coal, moving from carbon-intensive to carbon-neutral electricity generation is not going to be easy. AIJ looks at the government’s revised ETS and its impact on industry

20

Australia’s energy supply industry will need to secure almost A$100bn in refinancing

and new capital expenditure over the next five years in an economic climate that has severely reduced the availability of both debt and equity. On top of these factors, uncertainty surrounding the government’s proposed carbon pollution reduction scheme (CPRS) is making large-scale investment in new and existing electricity generators a risky proposition for industry.

Prime Minister Kevin Rudd has finally recognised this and bowed to industry pressure to delay the start date of the emissions trading scheme (ETS) to July 2011, and has made it more palatable to electricity generators who will be able to purchase an unlimited number of permits until July 2012 for A$10/tonne. After that time, a floating price will apply for the duration of the scheme.

“The worst global recession since the Great Depression means we must adapt our climate change measures but not abandon them,” Rudd told journalists. “Our objective, of course, is to provide business certainty for the future by

While coal-fired electricity generation and carbon neutrality would appear to be incongruous, an economic and effective means of capturing and sequestering the carbon emitted by coal-fired power plants could save the coal export industry A$20bn as well as extend the life of existing generators. This makes the government’s creation of the A$100mn Global Carbon Capture and Storage Institute (GCCSI) seem like a sound investment – even if the goal of having large-scale demonstration projects launched globally before 2010 is somewhat ambitious.

Prime Minister Kevin Rudd has selected former World Bank president James Wolfensohn to chair the institute, which will benefit from his stature in the

international financial community as well as his strategic vision. He will, however, have a large task ahead of him – many industry participants are highly sceptical of the financial viability of sequestration.

The Minister for Resources and Energy, Martin Ferguson, says the statistics of energy demand made the need for the GCCSI clear. “The International Energy Agency forecasts that world energy demand will increase by 45% between 2006 and 2030 and, despite the rising importance of renewable energy, fossil fuel use, especially coal, will continue to grow throughout this period,” he said. “Therefore, CCS is vital if we are to meet our various targets to dramatically reduce CO2 emissions in the coming decades.”

Saving coal-fired generators – the GCCSI

providing a stable framework, legislative and regulatory framework for the future given that this is a set of changes which affects the entire economy long term.”

Energy Supply Association of Australia (ESAA) chief executive Clare Savage says that the delay exacerbates problems for industry rather than relieves them. She says the energy supply industry is the largest liable sector under the CPRS, as power generation accounts for around 200MT of carbon emissions each year. The main emitters are the coal-fired power plants, which contribute two-thirds of Australia’s electricity supply.

“We want to see a well-designed emissions trading scheme in place sooner rather than later. However, what we have today is a revised scheme with the same critical flaws that will be implemented later rather than sooner. Without these necessary changes, the CPRS will not ensure timely, least-cost investment in the energy sector, and could compromise efficient energy supply in the next few years,” she says.

the switch Flipping

20-25 energy transition.indd 20 25/05/2009 11:55:48 AM

cover story


Origin Energy managing director Grant King, addressing the Senate Select Committee on Climate Policy, stated that uncertainty surrounding the government’s proposed scheme is affecting prices.

“Participants in the National Electricity Market are assuming that a form of carbon regulation will be introduced that will affect prices for electricity. But they don’t know when or in what form or by how much. In that context, they are unwilling to commit to long-term supply contracts that might quickly turn out to be well outside the market price,” he said.

He told the committee that, during the past year, liquidity in the market for long-term electricity supply contracts had deteriorated substantially, with large industrial customers and electricity retailers increasingly struggling to find electricity suppliers who will commit to long term price arrangements. “Instead they are buying shorter term contracts at higher and more volatile prices,” he said.

King said that uncertainty was also affecting decisions to invest in new baseload electricity generation, adding that investors are reluctant to build either coal or gas-fired generators because of the lack of clarity from the government.

“No-one is building new baseload coal plants, because investors foresee a carbon price being introduced eventually, but neither are they approving new baseload gas-fired plants because the investment case can’t be supported under current conditions,” he added.

Savage says the ESAA acknowledges that there needs to be a move away from coal-fired generation towards more carbon-neutral sources of electricity, such as solar and wind, as well as less carbon-intensive fuels such as natural gas. She says, however, that a clear roadmap needs to be provided by the government in order to grant industry the certainty required for such a huge capital outlay to be viable.

Rather than seeing renewable energy and CCS as competing alternatives, Ferguson says the government views them as complementary responses to the challenge of reigning in carbon emissions. “Opponents of this technological response to climate change need to look at the facts, acknowledge the need for CCS, and understand that this can be done in concert with the development of a suite of other clean energy technologies,” he says.

The GCCSI is made up of 85 bodies, with 16 national governments and more than 40 major companies signing on as foundation members and collaborating participants.

GCCSI foundInG member CompAnIeS (AustrAliAn compAnies in bold)

Alstom power Greenhouse Gas Storage Solutions (GGSS) Santos

Amec Hitachi senergy Alternate energy

Anglo American services Hydrogen energy international limited services petroliers schlumberger

Arup InpeX shell international petroleum babcock energy iHi southern states energy board

bHp billiton nippon steel engineering statoilHydro bp Australia macquarie Capital Advisers taisei

Chevron Australia mitsubishi corporation toshiba chiyoda corporation mitsui & co ltd 4 total

doosan parsons brinckerhoff Australia Truenergy development the dow chemical company Peabody Pacific Woodside energy

enel pricewaterhousecoopers Worley parsons Services exxon mobil Australia rio Tinto Xstrata Coal

General electric international rWe power Zeep Australia

the switch


cover story


overnight changeSavage’s first concern with the CPRS has to do with the transition from the current status quo to full auctioning of carbon permits. At the moment, generators do not pay for their greenhouse gas emissions, but as of 1 July 2011 – under the (newly) proposed legislation – the electricity sector will have to pay for 87% of its permits. This will have an immediate and heavy impact on asset prices of existing generators.

“You’ll actually see quite a significant impact on our sector and on the asset prices of the existing generators. So, from that perspective, we believe that you should actually see an increased number of permits granted to coal-fired generators in the early years of the scheme to basically recognise that asset value loss,” Savage says, adding that it would not affect the environmental integrity of the scheme, which is established by setting a cap on emissions. She says that the question of permit allocations “is a distributional question, not an efficiency one”.

The ESAA estimates the asset value loss in the first decade of the CPRS at about A$10bn, with the government offering those affected A$3.5bn worth of permits. All of this will be absorbed by the coal-fired generators. “The electricity sector will pay, in terms of purchasing permits, A$55bn in the first 10 years of the scheme. Some of that they can pass through to consumers so that’s why it’s not appropriate to ask for all of the A$55bn back, but the view is that there’s about A$10bn there that basically comes straight off the balance sheet of generators,” Savage says.

The move shortens the asset life of coal-fired generators, Savage says, which is acceptable as that is the basic aim of the CPRS. She says that industry agrees that when the price signal is right, the time will come to be able to phase out coal-fired power plants with competitive new low-emission technologies. These plants will then cease or reduce their production in the market and the

move to a low-carbon generation model will take a step forward.

“You need to recognise the fact that they have some asset stranding if you think investors are going to have confidence to reinvest in the electricity market going forward,” she says. “You need to recognise the impact that has on existing asset holders if you want to instil confidence going forward that there won’t be further asset stranding or increase the risk premium applied to the sector.”

GatewaysAnother issue that the ESAA is concerned about surrounds the length of the scheme caps and the gateway of information. The Federal Government has said it will give the electricity industry five years of firm scheme caps on how much emissions can be produced in any given year for five years and a gateway of information for five to 10 years after that. That would give generators a 10–15-year horizon of information on which to base investment decisions. Savage says this is not enough given the level of investment required.

“Our view is that 10–15 years of information is insufficient for planning long lived capital intensive infrastructure assets and that you really need 10 years of firm scheme caps followed by 10 years of rolling gateways so that you’ve always got a 20-year view of where Australia is heading in terms of emissions reductions. This is a pretty critical issue for us,” she says. “One of the issues in Europe that has been a big problem has been the fact that they haven’t got long timeframes for their scheme cap. They were five years at a time and some of the criticisms have been that people can’t invest in infrastructure assets because of those short timeframes and we’re falling into the same trap here in Australia.”

Unfortunately for Australia’s electricity producers, the government has not given any indication of being willing to compromise on its proposed legislation in either of those areas. Minister for Climate Change and Water Penny Wong says that the CPRS is needed to mitigate the high levels of carbon produced by Australia and that it is the first step in a long process of transformation.

Auction formatSavage says the government is consulting with the energy industry on the appropriate auction design so that generators will be able to manage the working capital requirements. Because electricity producers forward sell power to hedge their profits, they would be required to purchase and hold permits for electricity that they have yet to receive revenue for. The industry would like to be able to bid and secure permits at auction but only pay for

“The worst recession since the Great Depression means we must adapt our climate change measures”Prime Minister Kevin Rudd

Australian generation capacity by fuel source

black coal 49%

brown coal 17%

Hydro 17%

Gas 15%

Wind 1% other 1%

Source: Australian Energy Regulator


cover story


developer power station TechnologyCapacity (mW)

planned commissioning date

neW soutH WAles

Wambo Power Ventures Wellington ocGt 628 2009-10

Macquarie Generation Tomago ocGt 500 n/a

Eraring Energy Eraring Upgrade coal 360 2009

AGL Energy Leaf’s Gully ocGt 350 2011

Delta Electricity Marulan ocGt 300 2011-12

Delta Electricity Bamarang ocGt 300 2011-12

Delta Electricity Mt Piper expansion coal 180 n/a

Wambo Power Ventures Bega ccGt 114 2009-10

Delta Electricity Bamarang II ccGt 100 2011-12

Metgasco Richmond Valley ocGt 30 2009

QueenslAnd

Origin Energy Spring Gully ccGt 1000 2009

CS Energy Swanbank F ccGt 400 2012

AGL Energy SE Qld 1 (Ipswich) ocGt 350 2011

AGL Energy Townsville ocGt 350 2012

ERM Power Braemar 2 ocGt 290 2010-11

AGL Energy SE Qld 2 (Kogan) ocGt 250 2012

CS Energy/AGL Mica Creek upgrade ccGt 70 2010

VictoriA

Origin Energy Mortlake Stage 2 ccGt 450 n/a

Snowy Hydro Laverton North Conversion ccGt 440 2012

HRL/Harbin Power Latrobe Valley iDGcc 400 2011-12

Snowy Hydro Valley Power upgrade ocGt 100 2010

Loy Yang Power Unit 4 upgrade coal 25 2008

Loy Yang Power Unit 2 upgrade coal 25 2009

tAsmAniA

Gunns Ltd Bell Bay Pulp Mill Biomass 188 2009-10

CCGT – combined cycle gas turbine; IDGCC – integrated drying and gasification combined cycle; OCGT – open cycle gas turbine; NB: listing excludes wind projectsSource: Australian Energy Regulator

Major proposed generation investment in the national electricity market

“No-one is building new baseload coal plants because investors foresee a carbon price being introduced eventually”Grant King, MD, Origin Energy

them when they are needed, what is known as a deferred payment facility.

“Our members alone will have to hold… A$10bn of emission permits so they can basically continue to offer electricity contracts going forward and hedge their carbon costs going forward,” she says. “But you need to actually finance that A$10bn worth of permits and when you’ve got distressed assets due to asset writedowns and all the rest, accessing additional working capital is very difficult.”

The ESAA says that at a carbon cost of A$20/tonne, the sector would require A$4bn in permits for the current year. Under the current legislation, the forward contracting means generators would

need to hold permits for the next three or four years with a declining profile. “They’d need to hold 80% of their permits for the second year, 60% for the third year and 40% for the fourth year,” Savage says.

The government has promised low-income households a A$6bn assistance package to help with increased energy costs as a result of the introduction of the CPRS. It will fund that assistance with the proceeds from the permit sale, which limits how much help it is able to provide.

ImpactThe Australian Treasury has forecast that the price of carbon will be about A$35 (in 2005 dollars) by


cover story


2020, but before that was published, the ESAA conducted some of its own modelling based on a carbon price of A$40 and what its impact would be on emissions. Savage says that at A$40/tonne, carbon emissions would be reduced by 10% by 2020.

Australia currently has an installed generation capacity of about 45,000MW. Savage says a carbon price of A$40 would lead to 6,700MW of coal-fired power stations being closed down. This modelling shows about 15% of generation capacity being closed and includes the federal government’s pledge to have 20% of electricity generation come from renewable energy sources by 2020.

“You’d need to build about 15,000MW to replace the closed plants,” Savage says. “The reason it’s more than the 6,700MW [that is closed] is because coal-fired plants run 80–90% of the time and technologies like wind and solar tend to have much lower availability rates so that’s more like 30% of the time. Our view is that you basically replaced it with gas and renewables going forward and you would achieve a 10% reduction in emissions in 2020.”

Savage acknowledges that this would come at a cost to coal-fuelled generators, but that if the industry’s concerns were taken into consideration

It is essential that companies managing wastewater treatment plants understand the implications for their operations, and take action now to reduce the potential costs and other business risks associated with the Carbon Pollution Reduction Scheme (CPRS).

Getting the measurement right will be critical. While the water industry has expressed concern about the methodology for calculation of emissions from wastewater facilities proposed under the CPRS, ‘right’ will be whatever the government decides.

This calls for the introduction of a robust carbon accounting and management system, because getting the measurement wrong could lead to significant additional CPRS costs, not to mention the potential for exposure to penalties under federal and state Acts and requirements.

Reducing greenhouse gas emissions through improved plant operation and biogas management will also be imperative to keeping a lid on CPRS liabilities and other costs associated with the new scheme.

For example, GHD has helped Melbourne Water to identify potential to increase the generation of renewable electricity from biogas at

inDustry opinion

Those that fail to understand the implications of the Carbon Pollution Reduction Scheme risk more than just higher costs. Patrick Crittenden explains

True costs of CprS

The federal government has proposed that from July 2010 wastewater management

facilities that emit 25,000 tonnes or more of CO2-equivalent a year will have to purchase and surrender carbon pollution permits.

This will increase the cost of operating wastewater treatment plants that trigger the threshold, not just for water utilities but also for manufacturing facilities with onsite wastewater treatment plants.

Even those that don’t trigger the threshold will see an increase in indirect costs, particularly for electricity. The government has estimated that there will be a 1.1% increase in the CPI as the cost of carbon flows through the economy.

Patrick Crittenden

0

500

1000

1500

2000

2500

3000

Brown coal Black coal Natural gas(OCGT)

Natural gas(CCGT)

Solar PV Nuclear Hydro Wind

Life cycle carbon dioxide emissions (in kg/MWh) from electricity generation

Source: Australian Energy Regulator


cover story


However, she warns that it will be difficult to find investment for the network upgrades or even to refinance existing assets without government cooperation on the CPRS model. The global financial crisis is exacerbating what is already a difficult financing environment for electricity generators and if private sector financing is not available then the energy sector will have to ask the government for assisting with the A$100bn in refinancing and capital expenditure needed over the next five years.

“We’ve said to the government that we’re not looking to an energy sector financing facility at this point in time, but that we are seeking changes to the CPRS and we are asking that the Australian energy regulator allow an appropriate rate of return for network investments,” Savage says. “In terms of the government, we haven’t had any indication that they’re willing to move on their position. If we can’t get an adequate resolution to the policy issues that are basically constraining the energy sector in the middle of a global financial crisis then we’ll have no choice but to talk to the government about some other form of assistance.” aij

the Western Treatment Plant in Werribee, Vic. This would enable the site to be a net exporter of electricity to the grid and offset energy use at other Melbourne Water sites.

Innovative thinking on this front has the potential to lead to other benefits too, such as improved productivity, reduced odour issues and potential safety benefits.

The Federal Government has already announced a $2.15bn Climate Change Action Fund to help companies in the transition towards a carbon-constrained economy and there is a range of state-based initiatives to encourage innovation.

Assistance is likely to be available to organisations with obligations for industrial wastewater treatment plants to assist them to implement new technology to reduce emissions, such as biogas flaring or energy production systems.

While generation of CO2 emissions is top of mind at the moment, managers of wastewater facilities should also be thinking about generating permits – either through international means such as Certified Emissions Reductions created under the Kyoto Protocol’s Clean Development Mechanism or through some reforestation

activities locally. Kyoto-compliant reforestation will be included on a voluntary basis from the commencement of the CPRS. Depending on the amount of land they have available, owners of wastewater treatment plants may be able to benefit because wastewater could potentially be used to irrigate plantations to provide Kyoto-compliant carbon sinks.

While the CPRS will not commence until July 2010 – provided the legislation gets through parliament this year in the form currently proposed by the government – the time to act is now.

Growing awareness of climate change and its impacts have led to increased expectations from investors, customers, employees and the broader community, and companies that fail to understand the implications of the CPRS for their operations risk more than just higher costs.

Patrick Crittenden is a sustainability and climate change consultant for professional services company GHD. He has advised companies on strategies for managing energy efficiency, climate change management and sustainability for the past 15 years. aij

“The government has estimated that there will be a 1.1% increase in the CPI as the cost of carbon flows through the economy”

“If our needs were met in the scheme we would see basically that the existing owners of coal-fired generation would not have to impair their balance sheet”Clare Savage, esaa

the transition could be relatively painless and without unintended consequences. When the carbon price reached a point to make it more economical to close their plants, the generators would be able to do that and then sell their permits to invest in other low emission technologies.

“It does come at the cost of the brown coal generators and some black coal generators, but you can transmission then into a low-emission economy. So if our needs were met in the scheme we would see basically that the existing owners of coal-fired generation would not have to impair their balance sheet, they would see the carbon price signal and when the time came that there was someone more competitive than them they would be able to close their plants and sell the permits they’d received to invest in other low emission technologies.”

In addition to expenditure on low-emission technologies, Savage says the transmission networks and gas pipelines would also have to be upgraded in the move towards a carbon-neutral economy. Because new sources of generation, such as geothermal, wind and solar power, are built in different places to existing coal-fired generation, the distribution network needs to be adapted.

opinion


CASE STUDY RNSH UpgRADE

iNfRASTRUCTURENEwSoNliNE.Com.AU 26

RNSH:

26-30 Case Study RNS.indd 26 25/05/2009 11:57:28 AM



RBS (formerly ABN AmRo) Sponsor and financierThiess Sponsor, design and constructionThiess Services Hard facilities managementISS Health Services Soft facilities managementWilson Parking Car park services

Members of RNS contract winning consortium InfraShore

last of its kind The billion-dollar upgrade of Sydney’s Royal North Shore Hospital will hold its place in the history of Australian infrastructure as the last social PPP to be financed using the pre-GFC structure

The A$1.1bn financing of the Royal North Shore Hospital (RNSH) upgrade is unlikely

to be repeated again – at least in the near future. Welcome to the post-GFC world of infrastructure finance, where low-priced, highly-leveraged projects with a year-long underwritten guarantee are a thing of the past.

The 28-year PPP involves the construction of a new acute hospital facility; the construction of a new community health facility; the refurbishment of an existing building; and the construction of a new multi-storey car park and retail facilities at a cost of A$1.15bn. The project was awarded to the InfraShore consortium headed up by RBS (formerly ABN AMRO) and Thiess (see box out for other members of the winning consortium).

Bidders for the project were expected to provide a 12-month underwritten financing guarantee. For the Infrashore consortium, ABN AMRO provided a

full capital structure underwrite, taking 100% of both debt and equity.

The debt component of this deal will be the last of its kind seen in Australia for a long time. The reason behind this is threefold: pricing, magnitude and the length of time the lender was willing to hold on to the terms of the underwritten debt.

PricingThe A$1bn of debt needed to finance this project is believed to be priced at less than 100bps over swap. While this pricing may have been appropriate when bids were submitted in November 2007 – it is well below current market levels. Industry sources say that even if it were possible to find a financier willing to underwrite A$1bn of debt and guarantee it for 12 months in today’s market, pricing would more likely be in the order of 300bps above swap.

According to PricewaterhouseCoopers project finance partner Martin Locke, who acted as

“When you’ve got a 200-basis-point deterioration in the margins, you’re looking at making it very, very difficult for the private sector to beat the public service comparator” Martin Locke, PWC

RNSH:



financial adviser to NSW Health for the project, the deterioration in pricing will make it hard for the private sector to compete with the public sector. “That’s a phenomenal difference. When you’ve got a 200-basis-point deterioration in the margins, you’re looking at making it very, very difficult for the private sector to beat the public service comparator [PSC].”

“When we’re looking at market conditions for new transactions, the general margin for projects of this nature is round about 300 basis points so you’re not going to be able to beat the pricing [in today’s market].”

While normalisation of the debt markets is certainly not out of the question, it is unlikely that pricing will return to the very low levels of the halcyon days prior to the GFC.

Financial commitmentIn today’s market it is hard to find a lender willing to commit A$1bn of debt funding for any project, even with a clubbing arrangement, making it even more unlikely to be available from a lone underwriter. The upper limit of underwritten financing at the moment is said to be around

A$700m – a ceiling that will be tested with the A$3.1bn Victoria desalination plant that is likely to require at least A$1.5bn.

“In general terms at the moment, most people are saying that underwritten debt funding could be obtained for projects of a scale between A$500m and A$700m as soon as you start approaching A$1bn, you’re really pushing for the absolute maximum limit of what’s actually capable of being achieved given the withdrawal of quite a number of the foreign banks,” Locke says. “So again, if we were trying to do this transaction at this time, I think we’d struggle to have underwritten capacity. We certainly would not have underwritten capacity from more than one bidder so that would have actually fundamentally needed to revise how you would have actually bid out the project.”

Locke says lenders are now less willing to provide an underwritten guarantee for a full 12 months, given the current volatility of the credit markets. He adds that discussions with other participants in the market at the moment indicate it would be difficult to find lenders willing to hold financing terms for much longer than 90 days.

This will have a huge impact on how governments are able to bid out these PPP projects, with suggestions that they may have to assess design characteristics of the bids in a first stage before finding financing in a second stage of the bidding process. Another alternative would be to allow the same group of banks to underwrite all the bidders on a project, although that could result in the erosion of pricing competition and create a situation where the debt service coverage ratio is at a level that makes it economically unfeasible for the private sector to bid for projects.

Tricky projectIt would be a mistake, however, to think that reaching financial close during the GFC is the only reason that this project is significant. The RNSH upgrade required the bankers at RBS to change their funding model midstream and required Thiess to come up with a solution to the problem posed by completely overhauling a major hospital, while it was still being used.

December 2006Three eOIs are shortlisted

NOvember 2007Proponents submit project bids

SePTember 2008 NSW Health selects InfraShore as preferred proponent

23 OcTOber 2008 Project reaches contract execution

28 OcTOber 2008

Project reaches financial close

mID-2011construction of community health facility

due to be completed

mID-2013 construction of acute hospital facility

due to be completed

eND 2014

construction of new car park facilities

due to be completed

OcTOber 2006 Five parties submit expressions of interest

may 2007

NSW Health issues a request for detailed proposals

RBS’ Rob Ward (left) and John Martin

Royal North Shore Hospital upgrade timeline




The problem lies in decanting patients and staff from a building that is about to be demolished or refurbished into one that can be used without impacting the standard of care. The reference project, provided by NSW Health, called for the partial refurbishment of RNSH’s existing facilities. However, in order to solve the decanting problem, and decreasing the whole of life cost of the project, Infrashore proposed to a newbuild project. RNSH is a campus of buildings with a towering brown structure at the centre. That building was supposed to be refurbished, but Infrashore thought it could be replaced.

Rob Ward, the executive director of structured finance at RBS who led the project team, says all the bidders rejected the original reference project. “The original reference project was to refurbish the existing buildings one and two, adding an additional building and a new acute building, effectively leaving the hospital with four buildings on the site and a large proportion of the hospital being refurbished and leaving that brown building there with potential commercial development – if any,” he says.

In a PPP environment, replacing the refurbishment with the construction of a new acute building usually means more capital expenditure but less whole of life cost and Ward says it is just a question of whether it stacks up. The benefit in this instance, beyond getting a better facility and a lower whole of life cost, was de-risking the construction phase and reducing construction time.

“We managed it at Southbank TAFE in Queensland, but that was in an education environment and that was a very complex transition decanting process – this one was much more complex again,” Ward says.

Reworking the PSCSince each of the bids differed from the reference project, the public sector comparator had to be reworked to account for the changes. The most likely cost of the project, if it were provided by the public sector, was worked out to be A$1.13bn, so using the PPP model saved the government around A$13m.

PwC, in its capacity as financial advisor to the government, had to take into account the increase in new infrastructure and the amount of life that would be left in that new infrastructure as opposed to what was originally stated in the reference project.

“What we did was we made a quantitative adjustment to the proponents’ proposals to take into account the extra residual life of the incremental newbuild that they were providing,” Locke says. “Each proposal was compared separately in terms of what level of newbuild there was compared to the reference project so that adjustment for residual value was done on the basis that was specific to proponents’ proposals and not generally across the board.”

Because the goal of PPPs is to generate the best value for money for the services that would be covered compared to the reference project, quite a number of other adjustments were made, including accounting for how much land would be free to be sold if the proponent’s proposal went ahead. After making all these adjustments, Infrashore was shown to provide the greatest value for money.

Back to basics financingHalfway through the bidding process, it became apparent to John Martin, head of structured finance at RBS, that they would be unable to go

RNS Hospital upgrade advisersadvisory services were provided to the NSW Government by:

NSW Treasury Corporation Financial advisorPricewaterhouseCoopers Financial advisorClayton Utz Legal advisorBurnsBridge Sweett Design and constructionMilliken Berson Madden Technical support services advisermarsh Advisor on insurance mattersProcure Consulting Probity auditorSabar Car park specialistArcadia Retail specialistDepartment of Commerce Energy advisor

“The original reference project was to refurbish the existing buildings one and two, adding an additional building and a new acute building, effectively leaving the hospital with four buildings on the site” Rob Ward, RBS

December 2006Three eOIs are shortlisted

NOvember 2007Proponents submit project bids

SePTember 2008 NSW Health selects InfraShore as preferred proponent

23 OcTOber 2008 Project reaches contract execution

28 OcTOber 2008

Project reaches financial close

mID-2011construction of community health facility

due to be completed

mID-2013 construction of acute hospital facility

due to be completed

eND 2014

construction of new car park facilities

due to be completed

OcTOber 2006 Five parties submit expressions of interest

may 2007

NSW Health issues a request for detailed proposals




through with plans for a monoline wrap bond issue. This gave Martin and the rest of the team the ability to introduce a more traditional bank project finance debt solution.

“In 2007, when we put the bid in, there was still hope for the monoline wrap bond issue. That model died during 2008,” he says. “A feature of the current credit crisis is that we have gone back to basics in terms of financing. The debt financing looks a lot like the sort of structure your might have seen a decade ago on power financings.”

Martin says that while the eventual debt financing package is fairly basic, in the current environment it offers a number of advantages. It is flexible, so when liquidity returns to debt capital markets the debt can be refinanced without any break costs. It also spreads out funding risk, rather than funding all of the debt at financial close the debt has a slow drawdown profile – in the current credit crisis, where cash is king, this is extremely useful.

New solution neededIf times were different than the financing of the RNSH upgrade would likely be textbook material allowing for the reduction of negative spread and during a five-and-a-half-year drawdown period. Unfortunately for the participants of the upcoming A$1.7bn Marjorie Jackson-Nelson hospital in Adelaide and the A$1.2bn Sunshine Coast hospital in Queensland, this funding model is already dated and the governments will have to find an innovative approach to bidding out the projects.

In these challenging times, it will be interesting to see how respective government bodies structure these deals. In the RNSH upgrade, the commercial opportunities were bundled into the package – specifically the car parking, retail and commercial development aspects. This meant that each bidder was required to submit a value on those commercial opportunities and guarantee a payment to NSW Health.

The jury is probably still out on whether new hospital projects will go down that road. The most immediate concern is where the debt funding is going to come from and how the funding element will be managed during the bidding process.

While the RNSH upgrade will be remembered as the last of its kind to close before post-GFC financing came into effect, the fact remains that it was an incredibly complex project to complete regardless of the economic backdrop. That it was able to reach financial close in the most turbulent period of modern economic times is a testament to all the parties involved. aij

When the NSW Government announced that consortia headed by ABN AMRO, Babcock & Brown and Plenary Group would vie for the billion-dollar Royal North Shore Hospital project, it unwittingly pitted ABN AMRO against two groups formed by ex-employees.

On one day in 2005, ABN AMRO was rocked when John Bowyer left the company taking with him 27 other members of the infrastructure team to join Babcock & Brown. The principals of the Plenary Group are also all ex-ABN AMRO employees who left in 2004.

This project brought the three groups together for the first and last time, with Babcock & Brown going into voluntary administration in March.

Remember me?

“In 2007, when we put the bid in there was still hope for the monoline wrap bond issue. That model died during 2008” John Martin, RBS

AuSTRAliAN FiRm To eNAble PoweR SHAReAustralian consultancy firm SMEC will facilitate the export of electricity from Tajikistan to energy-ravished Afghanistan through the AFG/TAJ Regional Power Interconnection Project.

Tajikistan has an installed generation capacity of 4,405MW – 98% of which is hydropower – and its current surplus generation amounts to 1,500GW per year. This surplus is potentially worth US$30m annually, but is only available for export for six to eight months in spring/summer, and 90% of the installed generation capacity in Tajikistan is located in the southern part of the country.

SMEC is responsible for project management and implementation, particularly overseeing the construction of 157km of new double circuit transmission line from Sherkan Bandar to Pul-e-Khumri as well as the construction of a new 220kV switchyard at Kunduz and Baghlan.

As part of the same project, SMEC has signed a separate agreement with Barki Tojik (Tajikistan Power) to assist Tajikistan in its pre-construction activities, including assistance in the tendering and award process, project implementation, and hadvoer.

SRi lANkA geTS uS$160m eleCTRiCiTy booSTSri Lanka’s push to expand and improve its electricity services has received a boost courtesy of the Asian Development Bank (ADB). The aid comes in the form of a US$135m loan from its Ordinary Capital Resources (OCR) and a further US$25m from its Asian Development Fund.

The money will be used for the Clean Energy and Access Improvement Project and to support energy efficiency improvements. It will also be used to develop the use of renewable energy and to increase connections and services to rural areas.

Sri Lanka’s power sector has struggled for decades to meet rising demand and to provide efficient and cost-effective electricity services. Around 20% of households still lack electricity access and the government-owned Ceylon Electricity Board (CEB) is weighed down with debt, cramping its ability to fund new infrastructure or attract private investment.

The project is due for completion in May 2013 and will be administered by the Ministry of Power and Energy.

eu iN TAlkS To ReSuRReCT NAbuCCo deAlThe European Union is in negotiations with leaders from the Caspian Sea region to revive the A$14bn Nabucco pipeline, which has been designed to reduce Europe’s dependence on Russian gas.

The 3,300km pipeline project would connect Turkey and Austria with officials hoping gas deliveries could start arriving as early as 2014. Russia and Ukraine had a standoff over gas prices in December, which led to gas supplies to Europe being halted.

ARoUND THE woRlD SoUTH AND CENTRAl ASiA


simply complete the subscription form inside this issue

1 year=12 issues only

incl gst

ensure you continuereceiving aij

inside next issue

Water: solving the water crisis - a state by state analysis

social infrastructure: budget review: what’s in it for social infrastructure projects?

energy: the future of hydroelectric generation in australia

transport: a look at the availability ppp model

subscribe now

AIJ2 Subs Teaser.indd 31 25/05/2009 5:37:33 PM

talking with industry leaders


Transfield Services director Tony Shepherd has been responsible for the development of projects such as the Sydney Harbour Tunnel and Melbourne CityLink. AIJ sits down with the man known as the ‘Godfather’ of infrastructure to hear his thoughts on the future of the industry

32

What are Australia’s top infrastructure priorities?There a number of infrastructure projects that I think are a high priority for the country to ensure our continued growth in productivity and economic wellbeing.

Firstly, I think when it comes to roads in Sydney, the M4East with connection to Botany will reduce inner urban congestion and improve access to and from Botany/Mascot, which generates close to 20% of NSW’s GDP. The F2/M3 connection is the vital missing north/south link. In Melbourne, the completion of the outer ring road and the Geelong Road,

Tullamarine and Eastern Freeway link would significantly ease inner urban congestion and improve the flow of freight between the port, the airport, and the industrial centres to the west and east of Melbourne.

We need a fast, efficient and reliable rail freight service between Melbourne, Sydney and Brisbane. Similarly when it comes to mass transit, we need fast, reliable and frequent Metro systems in Sydney and Melbourne supplementing the outdated heavy rail commuter systems in both cities.

We should create a truly national East Coast market for electricity by strengthening the

The Godfather

32-37 Q_A_Shepherd.indd 32 25/05/2009 12:00:06 PM







interstate interconnections for electricity transmission.

We need to significantly reduce the number of coal ships waiting to be loaded at our major coal loading ports – streamlining the access to and from all our major ports, creating inland ports as appropriate, is essential for an island country so reliant on sea freight.

One of the biggest issues is water and its sustainability and delivery. There needs to be considerable work done to fix the Murray/Darling system. We should eliminate leakage and wastage in our capital cities’ water supply. The Victorian Government’s A$4.9bn investment in major infrastructure projects as part of the next stage of its Our Water Our Future plan is certainly a step in the right direction.

How can the public and private sectors improve their interaction?There are a number of ways the public sector can work with the private sector to improve processes and make infrastructure projects more financially viable. For example, risk allocation to the private sector has been stretched to the limit and perhaps beyond in some cases. A more reasonable risk allocation will improve viability from a private sector perspective.

Government should look at the cost of tendering for PPPs, which is approximately 1% of the capital cost (including interest during construction). So for a A$3bn project, each bidder is looking at having to come up with some A$30m to bid. Not many companies can afford to lose A$30m, particularly in the current economic circumstances. The public sector should pick the preferred bidder much earlier in the bid process, and should avoid the cost (and time) of two or three consortia going to full documentation and (bank) credit committee approval.

Selecting the preferred bidder early would also enable the preferred bidder to tap all of the available debt market. Under the current process, there may be two or three bidders all trying to raise significant debt on the same project from separate and exclusive banks; a task very difficult to do in the current constrained debt market.

The public sector may make a direct financial contribution to projects, which could be made through a direct capital grant for part of the project or the provision of a tranche of debt. Alternatively, the public sector could subscribe equity. However, the latter could

compromise the principles of a PPP project in respect of risk transfer.

How do you see the industry changing over the next decade?I think the lack of growth in productivity and the economic downturn have, and will continue to see, renewed emphasis on investment in infrastructure by federal and state governments and at levels of expenditure which we have not seen since the 60s and 70s. The creation of a specific Federal Ministry and a funded agency to deal with infrastructure will provide a national focus not previously seen in Australia.

The downturn in the economy is seeing greater direct expenditure on infrastructure by governments and this trend should continue.

I also think the use of debt by state and federal governments to fund large-scale, long-term worthwhile projects will become more common. The private sector will continue to invest in infrastructure but will be more cautious on risk and is reducing the level of gearing. Logically, infrastructure investment continues to represent a secure investment in a downturn.

The ‘partnership’ component of a PPP will be less of a platitude and more real in terms of risk sharing and co-financing.

What challenges does the existing PPP model face?The greatest challenge over the next few years for PPP projects will be sourcing debt and to a lesser extent sourcing equity.

This challenge should be overcome by more balanced risk allocation and co-financing by the public sector. A government contribution by way of capital or debt will not only reduce the quantum of private sector funding, but it will also demonstrate stronger government support for the project which should raise private sector confidence.

What has been your most memorable project?The most memorable project I have worked on has to be the Sydney Harbour Tunnel. It was a groundbreaking project which demonstrated the viability of the PPP model.

The Sydney Harbour Tunnel Project was developed and negotiated on an open book basis, and was an effective partnership or alliance with the host authority, DMR [later RTA]. The private sector took the risk of developing the project and proving its viability; design and construction; long term operations and maintenance; and to a lesser

“I think the lack of growth in productivity and the economic downturn have, and will continue to see, renewed emphasis on investment in infrastructure by federal and state governments and at levels of expenditure which we have not seen since the 60s and 70s”




extent, finance. The public sector took the traffic risk but also retained control of the toll on what is essentially a monopoly crossing.

In the current circumstances, the Sydney Harbour Tunnel project can offer some valuable examples for the future. This project highlights a number of things – the benefits of appointing a preferred bidder early in the process, open book development and negotiation of the project, more reasonable risk allocation, and public sector financial contribution in this case as a loan.

The Melbourne CityLink project is a close second as it was also a groundbreaking project in both its size and complexity, made even more challenging by a simultaneous IPO of the new entity Transurban.

How has Transfield adapted over the past 50 years and what’s in store for the future?Transfield Holdings as a private company started as a general contractor specialising in structural and mechanical, and grew in civil and particularly bridge building. No project was too big or too complicated and no site was too inhospitable. The company was known for its flexibility and delivery.

When I took over business development in the 1980s, public sector infrastructure investment was slowing and private sector industrial and mining investment was not strong. The Australian construction market was highly competitive.

We looked around and saw that ‘financial engineering’ was the go. My first deal was the Moonee to Alice Springs oil pipeline working with the former ANZ Capel Court. The next project was the Sydney Harbour Tunnel.

This then led us into a series of projects over the next 20 years in water, power generation and roads. In all these projects Transfield Holdings looked to take the role of long term operator and maintainer. We recognised the value and importance of that role in a PPP project.

The operations and maintenance arm of Transfield Holdings was publicly listed in 2001 as Transfield Services after the Transfield construction company had been sold. The subsequent listing of the Transfield Services Infrastructure Fund in 2007 confirmed our presence in ownership of infrastructure and took us into funds management.

Transfield Services also acts as a managing contractor or alliance contractor for major public sector funded infrastructure projects particularly in the water sector. Transfield Services continues

Director of Transfield Services • Non-executive director of Transfield Services • Infrastructure FundInaugural director of Transurban Limited • Chairman of the ConnectEast Group • Director of the Global Foundation and the • Australian Chamber OrchestraTrustee of the Sydney Cricket and Sports • Ground TrustMember of the Australian Institute of • Company Directors Patron of the Infrastructure Partnerships • AustraliaResponsible for development of many • landmark projects, including the Sydney Harbour Tunnel and Melbourne CityLink

A look at Tony Shepherd




to focus on the long term operation and maintenance of essential infrastructure.

The company remains flexible and adapts quickly to changing circumstances. For example, Transfield Services is developing an extensive portfolio of wind power assets, which will help satisfy the growing demand for renewable energy.

Do you think the current funding model for toll roads is sustainable?There has been a problem with traffic estimates on two recent toll road projects and traffic on the EastLink project [which is still in its ramp up phase], while below forecast, is still growing.

This does not mean the end of the current privately funded toll road model but it does mean some adjustments. In the future, bidders will be more conservative in their traffic estimates; leverage will be more conservative; and equity returns will rise.

We should not overlook the fact that the

majority of private toll road projects in Australia have been successful, just look at the Sydney Harbour Tunnel, M4, M5, M2, Melbourne CityLink and the Eastern Distributor. I predict that EastLink and M7 will be seen as successful projects in the future.

I believe we will see a return to the gearing, equity returns and more conservative traffic estimates of these successful projects and the spread between equity and debt returns will widen. When debt markets settle, there will also be a trend back to longer term debt more closely matching the life of the concession.

Do you think we will ever see a return to highly leveraged deals?The era of high leverage in any form of investment including infrastructure has come to an end and is unlikely to return in the foreseeable future. Leverage is not in itself a problem. Infrastructure projects lend themselves to relatively higher

“For a A$3bn project, each bidder is looking at having to come up with some A$30m to bid. Not many companies can afford to lose A$30m”

construction and operations of future transit infrastructure. Drawing on its global experiences, Parsons Brinckerhoff is working to define some of the many options which help inform these decisions.

Road projects generally deliver economic infrastructure objectives with benefits more directly aligned to the road users. As such, the adoption of a ‘user pays’ funding mechanism such as licensing, tolling or pricing is possible. In contrast, transit is seen as public transport and delivers social infrastructure objectives as well. In addition to transit passenger benefits, wider value is generated in the form of national and regional social, economic, and environmental benefits, road network benefits, and land value and development opportunities. Traditionally, many of these beneficiaries have not been identified and the funding burden has not been equitably distributed among the beneficiaries, but borne by government which then indirectly burdens non-users, generating opposition to projects.

The challenge for transit infrastructure is to align the project value and beneficiaries with funding mechanisms and, in doing so, decide who should pay, how and when. This approach

funding international alternatives

International projects could provide the insight Australia needs to finding alternative funding mechanisms, says Mike Jenkins

Ticket to ride

W ith the continued growth of Australian cities and raised consciousness about the

environmental impacts of transport choices, demand for transit projects is gaining momentum.

The big challenge is no longer convincing people whether we need transit, but rather how our cash-constrained governments fund such projects. With traditional funding mechanisms either under pressure or unworkable in the current financial crisis, alternative funding mechanisms are being sought. Key to these alternatives is to recognise the value created by transit projects, the various stakeholder groups which benefit from these projects and their associated timeframes. With this understanding, governments can decide how they may wish to capture some or all of this value to fund

Mike Jenkins




gearing, given they normally have long term stable cash flows indexed to inflation.

There are a number of reasons why recent projects have run into trouble. An obvious one would be, refinancing. Refinancing at the time of debt rollover is far more difficult in the current debt market, particularly with some foreign banks exiting Australia. Also, a number of the recent infrastructure deals have had relatively short term debt, which increases the pressure of financing. With higher gearing there tends to be less margin for error if the project does not live up to its revenue projections for example traffic for a tollroad. Finally, some of the major credit-enhancing agencies which have insured project debt have been downgraded leading to pressure on covenants.

Are infrastructure investments still an attractive investment?The problems with investment in infrastructure

have been oversold in Australia. Infrastructure is still a steady, long term and reliable investment. Eventually that fact will become apparent to investors. Superannuation and other funds continue to attract capital and cannot remain in cash indefinitely.

What can be done to help projects refinance?In an effort to ease the refinancing problem which is impacting good projects, the Federal Government should look at extending the mandate of the ‘Rudd Bank’ to include assistance in the refinancing of otherwise viable infrastructure projects. Given that the Australian Banks have the benefit of a taxpayer guarantee, they should be encouraged to fill the vacuum created by departing foreign banks for the refinancing of sound infrastructure projects.

Another solution is the one we chose at ConnectEast where we raised additional capital to reduce debt and to assist in refinancing. aij

to distributing funding burden in line with benefits can lead to different funding packages for each project. It also allows governments to continue to deliver social and economic objectives such as economic stimulus, improved access to jobs, and urban regeneration, through the provision of infrastructure.

This approach places greater emphasis on identifying the value derived from a project. ‘Value’ refers not just to the economic value, but also to social and environmental benefits, such as reduced greenhouse gas emissions, reduced traffic congestion, improved access to jobs and services, and increased land values. London Crossrail and the Copenhagen Metro are two examples of how various stakeholders understand the wider ‘value’ and thus split the infrastructure cost burden amongst various beneficiaries.

Rather than using the traditional tax mechanisms to fund transit projects, we now have an opportunity to consider a smarter alternative using the wealth of knowledge from international projects to build an Australian funding mechanism. This could be just the ticket to getting much-needed transit projects up and running. aij

Mike Jenkins was appointed PB’s General Manager of Rail & Tunnels in Australia–Pacific in early 2008. Having managed many complex international infrastructure projects for more than two decades, Jenkins has developed global infrastructure expertise with an emphasis on lessons learned. In this current role, Jenkins was a key member of North West Metro Strategic Review Team and is currently chair of the Peer Review Team for the Melbourne to Brisbane Inland Rail Alignment Study.

“The big challenge is no longer convincing people whether we need transit, but rather how our cash-constrained governments fund such projects”

Parsons Brinckerhoff (PB) is one of the world’s leading planning, environment and infrastructure consultancies, with more than 13,000 staff based in offices across six continents. In Australia and New Zealand, PB’s multidisciplinary team of 2,500 professionals offers a comprehensive range of multidisciplinary services and total project delivery on projects of any scale. See www.pb.com.au and www.pbworld.com.

Parsons Brinckerhoff

opinion


www.pb.com.au

CASE STUDY CRC foR ConSTRUCTion innovATion

infRASTRUCTUREnEwSonlinE.Com.AU 38

Building rightKeith Hampson, chief executive of Brisbane-based CRC for Construction Innovation, has overseen the creation of sustainability guides for industry, introduced 3D modelling and created infrastructure assessments. Now, he writes, it is time to evolve

A s Australia’s demand for sustainable infrastructure deepens, so does the

necessity of research programs designed to meet the complex challenges presented by the need to reduce carbon emissions, tackle climate change in general and maximise returns from infrastructure investment.

Since 2001, the Cooperative Research Centre (CRC) for Construction Innovation has been engaging in collaborative research and implementation for the property, design, construction and facilities management industry. We work with industry, government and researchers to improve productivity, and sustainability by transforming industry practice.

Our new bid to the Australian Government to become the Sustainable Built Environment CRC (SBEcrc) is currently under consideration, with successful applicants to be notified in late July. Sustainable infrastructure is integral to SBEcrc’s three research and skilling development program areas.

For example, in the Greening the Built Environment program, The Climate Change and Transport Mode Adaptation project will examine

38-40 sustainable.indd 38 25/05/2009 12:01:13 PM


VietnAm needs Us$700bn inVestmentvietnam needs at least US$500bn investment in road infrastructure, US$100bn for its railways and a further US$100bn for water projects, according to nguyen mai Bao Tram, director of Ho Chi minh City infrastructure investment Company.

other industry insiders claim the country needs US$1trn in capital expenditure and half of that would need to be provided from foreign sources. last month, foreign indirect investment had fallen to US$3.5bn from US$6bn at its peak at the end of 2007, according to figures released by Prudential vietnam fund management.

However, Vietnamese officials are hoping that they will be able to entice fund managers back to the country after the Asian Development Bank predicted the country would achieve 4.5% growth this year.

thAilAnd to boost infrA inVestment The Thai government has indicated it will change its laws providing it with the flexibility to push through massive infrastructure investments in a bid to pull the country out of its current economic slump, finance minister Korn Chatikavanij has said.

He told Dow Jones newswires that the constraint is not a market one and that the new legislation would allow for extensive government investment in key infrastructure projects, such as transport and irrigation.

Currently, the amount the government may borrow to finance its budget deficit is limited by law. The size of the budget has also been constrained by the amount of revenue available, with the government having no recourse to seek revenue for additional expenditures.

Korn said that the legislation would not allow the government unlimited control over spending and that it would look to invest between US$37bn and US$43bn over the next three years to support of the economy.

That investment would predominantly be used to increase the capacity of the country’s rail system.

KAzAKhstAn bUys Access to oil pipelineKazakhstan’s state-owned oil company KazmunaiGaz will pay Britain’s BP US$250m for its 49.9% stake in Kazakhstan Pipeline ventures. The deal will boost KazmunaiGaz’s access to the Caspian Pipeline Consortium (CPC) by an extra 10.5mT per year once work to expand the project is completed in 2013.

The CPC is the only oil pipeline on Russian territory not controlled by the Russian government. The move was made as the Kazakh government seeks to increase its oil exports to 400,000 tons per day in the next decade.

The 1,510km CPC connects Kazakhstan with the Black Sea port of novorossiysk. The expansion project plans to more than double 28.2mT per year capacity of the pipeline to 67mT per year.

ARoUnD THE woRlD SoUTH EAST ASiA

the impact of changing demographics, vehicle technology and shifts in our preferred modal mixes, and how our existing and future road and associated transportation infrastructure can be adapted to cater for these changes. Future investment in roads will be substantial and guidance is needed to ensure delivery of optimal competitive and community benefits to Australia for the greatest return on investment. By reviewing predictions and scenario planning for climate adaptation and its impact on infrastructure, the project will inform policy, and produce investment guidelines and strategies for stakeholders in the infrastructure industry.

Another project proposed within this program is Built Environment Framework, Targets and Benchmarks. This national sustainability database would impose scientific rigour and consistency, and cater for regional variations across an extensive range of sustainability measures and indicators such as rating tools, benchmarks, performance data and targets. By providing improved means of assessing sustainability, government and industry practitioners would be better equipped to raise the built environment’s sustainability performance efficiently and cost effectively.

Noted for its traditionally poor innovation adoption record, the built environment needs assistance if it is to both decrease national greenhouse gas emissions and also provide economic national stimulus through investment in major infrastructure projects. In Program 2, Developing Innovation and Safety Cultures, The Built Environment SME Innovation Exchange project will address this challenge. It proposes a change management strategy to deliver new knowledge and technology, in particular to the small-to-medium-sized enterprise (SME) sector, which despite generating 77% of the income earned by the construction industry, lacks a coordinated approach to industry sharing and taking on sustainability solutions.

In Program 3, Driving Productivity through Procurement, Managing Risk on Major Projects through Integrated Project Delivery will help all stakeholders in the project delivery life cycle, collaborate and safely share information to deal with the risk, security and intellectual property issues that arise in tendering for, or delivering on, complicated or large procurement processes. Such integration would result in better quality outcomes produced at lesser overall cost and with less reworking.

“Future investment in roads will be substantial and guidance is needed to ensure delivery of optimal competitive and community benefits to Australia for the greatest return on investment”Keith Hampson


CASE STUDY CRC foR ConSTRUCTion innovATion


In preparing for this new centre, we are also scoping projects that could ultimately become three national exemplars, including one focusing on rapid transport infrastructure. This will examine, among other deliverables, digital modelling as it applies to Queensland’s Gold Coast Light Rail. The project will draw on expertise including that formerly assembled for our award-winning Sydney Opera House digital modelling work, to provide a 4D simulation of the construction process. This will enable visualisation and show how the new infrastructure is integrating with the surrounding built environment of the Gold Coast. Over time it is believed such a model could save the light rail project time and money, and contribute to safety and environmental sustainability improvements.

Another key aspect to being an effective and influential CRC has been our work with leading industry associations. Most recently, as a founding member of the Australian Green Infrastructure Council (AGIC), we are supporting the development of their infrastructure sustainability measurement tool. The rating tool is a similar concept to those already used for commercial buildings and will assess sustainability performance of both greenfield and brownfield infrastructure assets through design, construction, operational and maintenance stages.

While the timing for such a tool is right in terms of the current accelerated roll out of community infrastructure projects nationally, critical to its success will be industry buy-in, compatibility with national legislation, and research rigour in its development. The establishment of a SBEcrc would allow for our ongoing support in its development and uptake.

With a recognised history of conducting applied research and bringing critical industry, government and research stakeholders around the same table, Construction Innovation’s proposed successor in the SBEcrc would be perfectly positioned to capitalise on this, as well as on its unique national and international networks of leading researchers and industry development agencies.

Australia needs to deliver more sustainable infrastructure outcomes to meet increasing domestic and global demands for sustainable communities. Delivery through the SBEcrc’s proposed research programs would help meet the challenges presented by the need to reduce carbon emissions, adapt to climate change, maximise national returns from infrastructure investment and economic stimulus packages, and remain competitive during the global financial crisis and beyond. aij

“Australia needs to deliver more sustainable infrastructure outcomes to meet increasing domestic and global demands for sustainable communities”

Us$30bn gAs pipeline gets green lightTransCanada (TRP) has received approval from the US federal Energy Regulatory Commission to start work on its 1,207km natural gas pipeline extending from Alaska to the continental US. The US$30bn pipeline will ship 127 million cubic metres of gas per day with further expansion to 167 million cubic metres capacity possible in a second stage of construction.

FERC has also approved ‘pre-filing’ status to the rival Denali project, which is being constructed by BP and ConocoPhillips. However, TransCanada holds an exclusive state license to build a project according to the Associated Press.

TransCanada originally planned to pre-file with fERC after gauging shippers’ interests next year but fERC had encouraged the company to move forward the application process to review both projects at once.

The company will still consult with shippers before releasing a final route for the planned project. it will have strong competition from the Denali project since BP and ConocoPhillips control most of the oil and natural gas reserves on Alaska’s north Slope along with Exxon mobil – which has not yet picked a project to support.

UncertAinty scUppers power plAnt plAnlS Power has suspended its proposed 750mw Michigan coal-fired power plant, citing to economic and regulatory uncertainties. lS said the project faced many obstacles over the past year, causing delays and increasing cost and risk.

“last year’s energy legislation in michigan restricting the available customers for the project, combined with current economic conditions and regulatory uncertainties, has deferred the immediate need for base load energy from the project,” said Robert Colozza, vice president for lS.

Since lS is not a regulated utility it cannot recover the cost to develop and build power plants, and the company has already spent around US$4m developing the project.

The Michigan project was the third coal-fired development lS has dropped or delayed this year. The company also abandoned a 750mw project in Iowa and indefinitely postponed a 1,600MW coal-fired project in Nevada.

sUnflower set to shine in KAnsAsSunflower Electric Power has come to an agreement with Kansas’ new governor to build a single 895MW coal-fired power plant after scaling back plans for a plant with two 700mw units.

As part of the compromise, Sunflower agreed to a package of environmental improvements, including reducing carbon dioxide emissions from nearly 11mT per year to 6.6mT per year. The power generator also agreed to offsets to reduce emissions at its facilities elsewhere by 3mT per year.

The previous projects would have provided about 200mw for use in Kansas with 1.2mw exported out of the state. Under the new agreement, only 695mw will be exported.

ARoUnD THE woRlD noRTH AmERiCA


AIJ1

.2

AIJ02_subs.indd 42 25/05/2009 11:45:03 AM


feature co-published


Thailand cradles PPPs

The Thai Government is on the cusp of delivering significant advances in infrastructure development through a groundbreaking PPP framework, says Graham Brook

deliver the Mega-Project Investment Plan, but recent estimates indicate that infrastructure funding to the value of THB1.73trn will be required. This is to occur over an extended timeframe between 2009 and 2012. Thailand’s Public Debt Management Office (PDMO) estimates are that approximately 80% of the required funding sources have been identified to date.

A key step towards achieving delivery of the infrastructure agenda has been the recent announcement of the Thailand PPP framework. KPMG and Allens Arthur Robinson have been engaged to advise the PDMO in developing the country’s PPP framework. The policy and guidelines included in the framework are driven by four key factors: the need for alternative funding sources for infrastructure projects; the transformation of the delivery of infrastructure and associated services; enhancing financial and capital markets; and managing Thailand’s sovereign debt position.

Thailand continues to move forward on infrastructure development. The new

government is in the process of launching Public Private Partnerships (PPP) within a formal policy framework in Thailand that aims to achieve overall value for money, as well as improve governance arrangements and transparency in its procurement practices.

Thailand has in place an ambitious infrastructure agenda based on the delivery of a significant Mega-Project Investment Plan. The plan includes a number of key projects to be delivered over the next five years across multiple sectors, including transport (both roads and mass transit), health, housing, water and other utilities (electricity and gas). This program was first articulated in 2005, and while it has been modified (and the timelines extended) the Royal Thai Government’s intentions are resolute.

It was originally anticipated that a five-year timeframe from 2005 and a budget of THB1.7trn (approximately US$50bn)would be required to

42-45 KPMG thailand.indd 42 25/05/2009 12:03:09 PM


Projects to be procured under the PPP framework are envisaged to involve a government agency contracting with a private sector consortium to deliver the design, construction and facilities management associated with the assets, and services required for a project. A PPP typically involves the use of private sector finance to deliver the project. In relation to social infrastructure projects, the government pays the private sector partner from the operational commencement of the facilities until conclusion of the contract (typically 15–30 years) through a periodic indexed service charge that may be abated for poor performance.

Studies on the difference between PPP and traditional procurement indicate a number of advantages from using PPP procurement. According to Allen Consulting Group, these include superior cost efficiency (which can range from 30.8% when measured from project inception, to 11.4% when measured from contractual commitment to the final outcome) and reduction in time overruns. Further, it has been observed that under traditional procurement there is a demonstrated, systematic, tendency for project appraisers to be overly optimistic. To address this tendency, the Mott McDonald Review of Large Public Procurement in the UK report from 2002 recommends that appraisers make explicit, empirically based adjustments to estimates of a project’s costs, benefits and duration. This approach has subsequently been adopted under UK procurement policy.

Thai Mega-Project Investment Plan In August 2005, the Royal Thai Government approved an infrastructure program primarily aimed at boosting Thailand’s economic growth. The program, valued at THB1.7trn, focused on the delivery of infrastructure Mega-Projects which were scheduled to occur over an ambitious five-year period between 2005 to 2009.

In a Thai context, Mega-Projects are defined by the government as a large-scale investment by the public sector with the value of each project exceeding THB1bn. The government’s 2005 announcement classified the Mega-Project Investment Plan into two broad categories:

Key Mega-Projects - consisting of new projects »totalling THB 1.4 trillion in expenditure, or 80% of the total Mega-Project investments. These projects included the investments on mass transit in Bangkok, water system improvements country-wide, community housing, expressways and telecommunications. Other key projects included 450,000 new

Thailand has in place an ambitious infrastructure agenda based on the delivery of a significant Mega-Project Investment Plan

public housing units, spending on education and health, and improvements to marine and air transport infrastructure.Supporting Projects – These are investment »projects already listed in the government plan with their budgets having been prepared. For example, the annual capital expenditure budget for revamping major roads and bridges in Bangkok. In total, supporting projects will cover approximately THB3bn, or 20% of the total Mega-Project investments.From the outset there was concern that the

five-year Mega-Project plan could strain public finances. Of the THB1.7trn spend it was proposed that 39% be financed from Government budgets, 24% by domestic borrowing, 18% via foreign credit, 13% by state enterprises and the remaining 6% by other means.

In November 2005, the Asian Development Bank (ADB) also announced in the Thailand Infrastructure Report the possibility of helping fund Thailand’s THB1.7trn plan for new infrastructure projects across the country.

The 2005 forecast indicated approximately 80% of the spending was to occur between 2007 and 2009. Recent reporting indicates that this timetable has been extended and the composition of the Mega-Project Investment Plan has been revised. However, budget estimates have identified that there still remains substantial demand for public infrastructure projects in Thailand. The four-year estimated requirement (2009-12) for large-project funding alone amounted to approximately THB1.73 trn as the table presented by PDMO to UNESCAP outlines.

Thai Mega-Project Investment Plan 2009–2012 (THB billion)

Sector 2009 2010 2011 2012 Total %Mass transit 25.8 69.4 127.8 227.4 450.4 26.1Transportation 82.8 113.8 118.8 131.0 446.4 25.8Road 39.1 60.0 50.4 75.0 224.5 13.0Rail 6.8 17.6 17.6 28.5 70.4 4.1Airport 33.9 30.4 45.5 27.5 137.3 7.9Port 3.0 5.7 5.3 0.0 14.0 0.8Water resource 23.5 44.9 63.6 52.0 184.1 10.6Education 2.6 14.2 11.2 0.0 28.0 1.6Health 25.0 28.0 26.6 25.9 105.5 6.1Housing 26.4 25.8 21.4 13.4 87.0 5.0Energy 86.7 108.3 99.1 89.9 383.9 22.2Communication 17.4 12.8 8.2 5.0 43.4 2.5Total 290.3 417.1 476.6 544.6 1,728.7 100




While 82% of the funding for the revised program has been identified (through sources including government budget, government revenue and domestic and international loans), the remaining 18% or THB316bn was yet to be secured. With funding still outstanding, it is expected that private finance and PPP initiatives will have a significant role to play in progressing the ambitious infrastructure spend.

This current funding shortfall and the overall ambitious infrastructure program has prompted the need to examine the procurement practices in Thailand, and how they might be improved.

Pre-PPP Historically, the majority of government infrastructure projects in Thailand have been delivered using traditional procurement methods. Typically, this has involved projects being fully financed through the government budget with both the capital costs, and operating and maintenance costs funded from the public purse.

Despite limited reporting on these projects, feedback from both private and public stakeholders indicates that the procurement approaches for large infrastructure projects require improvement. The commonly reported issues arising from the project planning and procurement stages include construction cost overruns, completion delays and the limited attention given to whole of life maintenance.

While traditional methods are used for the majority of projects, it is important to note that Thailand also has a long history of encouraging private sector involvement. The Royal Thai Government initially made moves to encourage private investment in 1967 through the National Economic and Social Development Plan 2. This policy and more recent developments such as the Act on Private Participation in State Undertaking (1992) have led to some private sector involvement in infrastructure delivery through variations on PPP procurement. However, due to inconsistent approaches, a lack of transparency and different interpretations of existing guidelines, the outcomes to date have been mixed.

A contemporary example of complex infrastructure delivery is the Bangkok Mass Transit (BMT) Project. The project experienced a number of difficulties; including delays to project planning (such as a change in alignment and a 10km extension of the track), delays in the transfer of land from the public sector to Bangkok Mass Transit System Public Company Limited (resulting in project delay), overly optimistic patronage

forecasts (significantly affecting the private operator’s revenue) and potential restriction on future the network expansion. Many of these issues may have been mitigated with a more structured procurement process.

Other recent examples of government infrastructure delivery include the Don Meaung toll way project, which has seen major public protest causing delay, overestimates in forecast traffic volume (two access points to local roads were supposed to be removed, but were not, causing traffic to be less than forecasted and the concession’s debt to be unserviceable) and uncertainty about the financial viability of the project. The long term viability of the project has been affected by the construction of alternate competing routes and the construction of a new international airport (reducing the demand for travel to the Don Meaung airport).

While private investment has occurred in the past in public infrastructure, a number of barriers have been identified restricting future investment. The new PPP framework identifies one of the key constraints to attracting private sector funding for Thailand infrastructure as the need for implementation of laws, systems, processes and policy frameworks designed to safeguard foreign investment and ensure effective competition, transparency and accountability in decision making.

Thai PPP policy framework In order to harness private sector innovation and encourage investment, KPMG was engaged to assist the Royal Thai Government’s Ministry of Finance’s PDMO in developing a PPP framework and guidelines that are applicable to Thailand.

The final guidelines delivered to the PDMO outline a five phase PPP process illustrated below:

Since receiving the final report the Royal Thai Government has embraced the new PPP framework and guidelines

PHAsE 1 PPP suitability Assessment

PHAsE 2 EOI & short Listing

PHAsE 3 RFP & Preferred Bidder

PHAsE 4 Final Negotiation & Contract Execution

PHAsE 5 Project Implementation & Monitoring




The guidelines adopt a structure typical to PPP policy in other jurisdictions around the world, allowing private sector participants in the PPP process a degree of familiarity. While the process is familiar, the detail is very much Thailand specific.

The components of the PPP process outlined in the guidelines includes: requirements of assessing the suitability of a given project as a PPP; EOI and short listing process (which includes the establishment of the project team; project plan and identification of commercial issues); request for proposal and preferred bidder phases (including preparing the tender documents; evaluating the preferred bidders and briefing the steering committee); final negotiation and contract execution (including establishing the negotiations team setting the negotiations framework) and finally project implementation and contract monitoring.

In addition the framework provides guidance on assessing value for money against a public sector comparator model, risk management and standard commercial principals from PPPs.

The PPP framework is a piece of world-class public policy which is also unique to Thailand’s political and commercial environment. The framework endeavours to increase investor confidence by helping consistent government policy and regulation, rigorous and transparent procurement processes and harnessing of private sector innovation to achieve value for money.

Possibly the most complicated aspect of any PPP process is the prudent allocation of all associated financial and other risks between the contracting parties. This notion of sensible risk-sharing is at the heart of the PPP process, and it requires a great deal of common understanding between all participants. The new framework gives the Royal Thai Government, its agencies and potential private sector partners a common language with which they can assess, design and deliver world-class infrastructure.

Next test Since receiving the final report, the Royal Thai Government has embraced the new PPP framework and guidelines. In an interview with the Bangkok Post, the Thailand Prime Minister Abhisit Vejjajiva indicated that the initiative will be instrumental in supporting the country’s economy during the global financial crisis.

Further, that “several construction schemes are likely to be implemented under the PPP model”.

These projects “need not be limited to a road construction or a water supply project. It can also be a housing estate project” or potentially health care related projects such as hospitals. Indications from Mr Abhisit are “that the scheme is expected to materialise in two years”.

In order for this to occur, it is envisaged that the likely next steps would involve the Royal Thai Government establishing a PPP advice unit and engaging with the market through a briefing of potential investors. Part of this process is likely to involve establishing pilot projects to be procured in line with the new PPP framework and guidelines, following each phase from the detailed procurement options analysis through to contract execution and implementation. It is expected that the pilot project will be prioritised and fast tracked in order to provide the market place certainty in the proposed process. The pilot projects would likely to include some of the previously identified Mega-Projects and may come from a number of sectors including mass transit (rail), motorway and health (hospital facilities).

Once under way it is then expected that the Royal Thai Government will announce a pipeline of Mega-Projects promoting market interest and confidence in the process.

A bright outlook Thailand, after a history of heavy reliance on traditional procurement and a record of limited success in engaging the private sector, has now taken the positive step of formulating a Thailand specific PPP framework. This is a clear signal to the market place that the Royal Thai Government is serious about reforming infrastructure procurement and a positive step towards advancing the Thailand infrastructure agenda.

With this solid policy platform now in place, the next step will be to nominate a number of projects in order to test which of these is most appropriate to put forward as pilot PPP projects.

It is clear that there are still complex social economic and political challenges to be faced in the delivery of the ambitious Thailand Mega-Project Investment Plan, but the implementation of the PPP guidelines will go some way to addressing and removing some of the key barriers to its progress.

While a number of countries in Asia have talked for many years about the delivery of a PPP framework, the Royal Thai Government has delivered a ground-breaking initiative which has the potential to deliver significant advances in infrastructure development in several key sectors. aij

Graham brooke is a partner at KpmG australia and head of KpmG australia’s infrastructure projects group (ipG). research assistance by ben hollway, Jonny scholes and Keratikan rakvit, KpmG. the views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KpmG, an australian partnership, part of the KpmG international network.

biobrief


tender talk

infrastructureneWsonline.com.au 46

Maintenance Services for Water Supply Infrastructure Standing Offer Panel TS #334101 Closing Date: 08-Jun-2009 03:00 Pm Location: as stated Web Document Location: not Published Contact: documentsCompany: seqwater [email protected]

invitation to tender - maintenance services for Water supply infrastructure standing offer Panel.

Queensland Bulk Water supply authority trading as seqwater seeks tenders from suitably qualified firms to join their maintenance services for Water supply infrastructure standing offer Panel.

successful tenderers will be engaged to provide maintenance services for Water supply infrastructure, as and when required, under a standing offer arrangement.

maintenance services for Water supply infrastructure sought include:- electrical maintenance services.- mechanical maintenance services.- instrumentation maintenance services.- control system maintenance services.- Pipeline maintenance services; and- Building and civil maintenance services.

invitation to tender documentation may be requested by email only from monday 18 may 2009. “maintenance services Water supply infrastructure” must be included in the subject line.

Funding to Support Establishment of Solar Power Station TS #331237 Closing Date: 25-sep-2009 12:00 am Location: as stated Web Document Location:

www.dpi.vic.gov.au/largescalesolar Contact: department of Primary industries

department of Primary industries – be a part of Victoria’s new solar power station.

$100 million in Victorian Government funding is now available to support the establishment of a new large-scale solar power station, producing at least 330GWh of electricity per year. the form and nature of the project including ownership structure, technologies employed and physical location in Victoria are open to negotiation. for more information and to obtain a copy of the request for Proposals (rfP) go to the website.

Scope and Cost Definition Study and Financial Model TS #334076

Closing Date: 17-Jun-2009 10:00 am Location: as stated Web Document Location: not Published Contact:documentsGovdept [email protected] Contact:inspectionGovdept railcorplevel 1 south 477 Pitt streetsYdneY 2000Contract No: 09/04015

Professional services - scope and cost Definition Study and Financial Model.atP Program.

the automatic train Protection (atP) Program is a major railcorp initiative that seeks to improve network safety and reliability. the european train control system (etcs) level 1 was selected as railcorp’s preferred atP technology and following a successful Pilot trial, the railcorp board approved funding for the

design and Planning phase of the atP Program.

a key objective of the atP design and Planning phase is to define the scope of works and cost for rolling out etcs level 1 across the RailCorp network and fleet, and to build a flexible Financial Model that allows for multiple options analyses. these pieces of work will form a significant input to the Business case for Government funding approval.

railcorp is seeking to engage a Professional services Provider (single suitably qualified firm or a consortium) to:- Undertake a Scope and Cost definition study;- Build a Flexible Financial Model; and - conduct a risk assessment.

in essence, the service Provider will be required to “stand in the shoes” of a potential tenderer for the rollout works and prepare a fully costed, transparent, cost effective “quote” for each individual works package.

to gain access to the request for tender documents, tenderers are required to register their interest by sending an email enclosing the following: 1) company name 2) acn/aBn number 3) contact name 4) Postal address 5) email address.

A pre-tender briefing will be held on tuesday 26 may 2009 at railcorp; commencing at 1.30pm and concluding at 3pm.

Construction of a DAF System for a Water Pre-Treatment SystemTS #331347

Closing Date: 04-Jun-2009 09:30 am Location: as stated Web Document Location: www.tenders.nsw.gov.au/ Contact: nsW dept. of commerce kamal fernando

Tender talkWelcome to the Tender Talk section of Australian Infrastructure Journal. This section will provide access to tenders from around the country.

Questions regarding tenders should be emailed to [email protected]


46-47_Tenders.indd 46 25/05/2009 12:52:13 PM


tender talk

infrastructureneWsonline.com.au 47

[email protected] Ph: 02 9372 7869Contract No: 0900677

the lake cargelligo WtP, owned and operated by lachlan shire council, was constructed in 2003 with a daily peak production capacity of 4.5ml. raw water quality has deteriorated greatly since the plant was commissioned, to the extent where the treatment process has failed for prolonged periods. lachlan shire council has decided to construct a daf system to provide a raw water pre-treatment system that will allow the ultra filtration membrane water treatment plant to perform within its design parameters under highly deteriorated raw water conditions, thus ensuring a secure and safe potable water supply.

lachlan shire council will be the Principal for this contract. the state Government through department of Water & Energy is providing financial assistance. this contract covers all the work associated with the DAF system, except for the civil and structural work. However tenderers are encouraged to submit an optional tender price to undertake the civil and structural work for the Project.

an optional pre-tender meeting will be held at lake cargelligo on 19 may 2009 at a time nominated by the contact Person. download a free softcopy from the website.

Design and Project Management of Piping Systems TS #331521 Closing Date: not stated Location: as stated Web Document Location: www.nrw.qld.gov.au/factsheets/pdf/water/w69.pdf Contact: department of environment and resource management PO Box 350, ROMA [email protected] Contact: department of environment and resource management andrew Brier [email protected] Ph: 07 4624 1513 design and Project manage piping systems

to replace bore drains in the Queensland section of the Great artesian Basin.

Individuals and firms interested in designing and/or managing the purchase and installation of piping systems to replace bore drains, for landholders in the Queensland section of the Great artesian Basin, are invited to register with the department of environment and resource management.

the work would be on behalf of participants in the Great artesian Basin sustainability initiative (GaBsi) with the landholder engaging the interested party. it will be a requirement that landholders have work certified by a Registered Professional engineer of Queensland to be eligible for the GaBsi.

interested parties will be given further information as the guidelines for this work are developed.

to register your interest: send your company name, address, key contact name, phone number and email address via email or post to Janette magick, department of environment and resource management, PO Box 350, Roma.

for more information on GaBsi go to the website.

enquiries to andrew Brier, manager - Roma Office, department of Environment and resource management.

Education Stimulus Package - Callng for Products and Service ProvidersTS #331602

Closing Date: not stated Location: as stated Web Document Location: www.det.nsw.edu.au Contact: department of education and training nsW

nsW education stimulus Packageregional contractors appointed.investing in a Better future

as part of the australian Government’s nation Building economic stimulus Plan, construction companies have been appointed to deliver school projects around new south Wales.

the australian Government will fund $2.8 billion for local nsW public primary schools projects including new school

libraries, halls and permanent classrooms.this massive injection is investing in a

better future for nsW and will secure around 9000 jobs.

register Your Business to Provide services. the stimulus Plan will directly benefit local business and you can register to provide services and products for the building program at www.det.nsw.edu.au

the construction companies listed below will be responsible for managing the program of works in each region on behalf of the nsW department of education and training.managing contractor details-Hunter/central coast contact Bovis lend lease via email: [email protected] (incl. southern Highlands) contact richard crookes construction on (02) 9902 4700-new england contact the reed Group on (02) 9965 0399 or email: [email protected] coast contact the reed Group on (02) 9965 0399 or email: [email protected] sydney contact Bovis lend lease via email: [email protected] sydney region contact Hansen Yuncken on (02) 9770 7600-sydney region contact abigroup via email: [email protected] region (central West) contact laing o’rourke on (02) 9903 0775 or email: [email protected] Sydney Visit Brookfield Multiplex at www.brookfieldmultiplex.com-riverina region contact laing o’rourke on (02) 9903 0775 or email: [email protected]


tendersearch provides a ‘hands-on’ approach to all its services, which extends to tender preparation and bid management, training on tendering, design and publishing, and corporate and creative writing. as part of this complete personal service, tendersearch clients have direct access to specialized consultants and a bid helpline. for more information on tendersearch, visit www.tendersearch.com.au.

46-47_Tenders.indd 47 25/05/2009 12:52:13 PM


column legal


The global financial crisis and the ending of the resources boom has seen a wave of

project closures and deferrals throughout Australia, particularly in the mining sector.

From a legal viewpoint, however, changing economic fortunes do not justify the termination or suspension of a contract. Companies must take extra caution when ending or suspending contractual arrangements if they wish to avoid being found in breach of contract and liable for damages.

TerminationContracts are not easily set aside or varied. At common law, a party may only terminate a contract if the other party has breached an essential term or repudiated the contract.

Due to the difficulties in determining what an essential term is, most contracts will specify when a party is in default and what constitutes a right to terminate. Generally, these clauses deal with the non-performance of a party, for example, a failure to pay, and do not deal with external events. It is important that the procedure set out in these clauses is strictly followed, otherwise the innocent party may find itself in breach of contract.

Many contracts therefore include a ‘termination for convenience’ clause, which allows a party to terminate at any time for any reason.

These clauses generally provide for some compensation to the contractor for demobilising from site and cancelling any subcontracts, or may even cover the profit the contractor would have earned had the contract continued.

Prior to exercising any clause, it is important not only for the proper procedure to be followed, but also for the principal to be aware of the level of compensation payable to the contractor upon termination and whether this outweighs the cost of continuing with the contract.

In the present environment, termination for convenience clauses are likely to increase in use. But without such a clause, it is unlikely that a party will have rights to terminate a contract simply because continuing with the project has become uneconomic.

SuspensionSuspension rights are a common feature of most contracts. Principals can often suspend the works for a number of reasons, but if the contract is suspended through no fault of the contractor’s actions, such as economic reasons, then usually the principal must pay the contractor’s costs resulting from the suspension.

Contracts which contain a ‘force majeure’ clause may also be suspended due to external events affecting the contract’s performance. Most contracts generally define force majeure to be natural events such as flood, fire and drought, and it rarely includes economic events. There is no legal definition of what is force majeure and therefore each clause must be looked at to see if the event is included.

WarningTermination of a contract can be fraught with danger. To be effective, the terms of the contract allowing termination must be followed strictly. A party who does not terminate a contract correctly or terminates it unlawfully will itself be in breach of contract and liable for damages. AIJ


Happy endingsTerminating contracts unlawfully could put you in breach of the agreement and make you liable for damages. Michael Rochester, a partner at McCullough Robertson, Newcastle, advises readers on how to end it right

michael rochester, partner, mccullough robertson, newcastle, can be contacted on (02) 4924 8901 or via email at [email protected].

48 Column- Termination.indd 48 25/05/2009 12:04:18 PM


IBC.indd 1 25/05/2009 11:49:01 AM

www.kensingtonswan.com

aij

au

str

alia

n in

fr

as

tu

ctu

re

jo

ur

na

l

volume 1 Issue 2

En

erg

y tra

nsitio

n R

oy

al N

orth

Sh

ore

Ho

sp

ita

l To

ny

Sh

ep

he

rd

P O L I CY C O N S T R U C T I O NR EG U L AT I O NF I N A N C E

ExclusivE!The ‘Godfather of infrastructure’ tells us what the future holds

protEcting assEtsWill the Commonwealth’s guarantee of state debt close the funding gap?

last of its kindThe A$1.1bn Royal North Shore Hospital upgrade and why we won’t see a deal like it again

volume 1

Issue 2

Carbon-neutral opportunityInfrastructure’s winners and losers on the path to the ETS

outsidecover_spread.indd 2 25/05/2009 3:06:19 PM

www.originenergy.com.au

Documents

Australasian Infrastructure Journal