MAKING THE MOST OF INFRASTRUCTURE VICTORIA

1

Making the most of Infrastructure Victoria

1

IntroductionThe Andrews Labor Government is pressing ahead with its election commitment to establish Infrastructure Victoria (IVIC). The Minister sponsoring the IVIC legislation – the Hon Gavin Jennings – has described the new body as “providing independent oversight of infrastructure planning and delivery beyond the electoral cycle, (thus) taking the politics out of infrastructure”. He has also characterised IVIC as “part urban planning body” and “part economic modelling agency”.

“It’s an agency that understands how you piece all these things together, and then, from those platforms, you make sensible decisions about how and when you should roll out your infrastructure programs”.

On the 16th April 2015, SGS Economics & Planning hosted an event to inform public debate about what IVIC might do and how it might go about doing it. In particular, the following questions were posed to the guest speakers:

– Can the politics really be taken out of infrastructure planning and investment?

– How will IVIC fit in with other bodies advising government on city shaping projects, such as the Metropolitan (or Victorian) Planning Authority?

– What can we learn about the efficacy of these bodies from experience with Infrastructure Australia and Infrastructure NSW?

The panel of experts that addressed these questions included:

– Hon. Paul Lucas - Former Deputy Premier and Minister for Infrastructure, Local Government and Planning for Queensland. Lecturer in Strategic Metropolitan Planning; Governance and Public Policy Specialist Specialist, University of Queensland

– Kirstie Allen - Specialist policy consultant - City Plan Strategy and Development. Former executive at KPMG and NSW Government, and

– Tony Canavan - National Transport Leader at Ernst & Young.

After short presentations by each of the panel members, Bill Dunbar (CEO – SGS Economics & Planning) facilitated a panel discussion and an interactive Q&A session, with audience members posing the vast bulk of questions. The audience was comprised of ~180 guests from state govern-ment agencies, local councils, infrastructure

MAKING THE MOST OF INFRASTRUCTURE VICTORIA

2

providers, private sector advisory firms, academia and community members.

This issues paper summarises these discussions and also includes some material which informed the design of the event.

The need for reformThe identification and scoping of state and region-ally significant infrastructure projects varies across infrastructure sectors and government jurisdictions. In general however, a lead govern-ment agency undertakes planning, considers options, develops and assesses project propos-als, and provides advice on the outcomes of these processes to relevant Minister(s). Ministers priori-tise the list of projects to be considered by Cabinet, with Cabinet ultimately deciding on which projects will proceed.

The Productivity Commission (2014)1 identified some of the potential shortcomings of this approach. The Commission highlighted that while elected governments can, at least in principle, weigh up costs and benefits from a community-wide perspective, some of the shortcomings of this approach include:

– Inadequate incentives and accountabilities for ensuring that projects are properly analysed

– Decision makers having difficulties in judging whether analyses accurately represent the likely costs and benefits of projects

– Budget processes that consider capital and operational expenditure separately, leading to a lack of incentives for developing project proposals that optimise whole-of-life costs

– Decisions being driven by political considerations rather than by economic merit, particularly in the lead up to elections

– Decisions being based on inadequate analysis due to a perceived need for governments to react quickly to infrastructure problems that receive media attention or to provide stimulus to the economy during a downturn

– Preference being given to large iconic projects, rather than projects which are less attention

1 Productivity Commission (2014) Public Infrastructure, Volume 1, No. 71, 27 May.

grabbing, but which might offer higher net benefits, and

– Incentives for a preferred project to be selected at an early stage and maintained even if new information shows later that it is deficient.

In response to these shortcomings, the concept of an independent infrastructure agency gained support. Indeed following the earlier establishment of Infrastructure Australia (IA), New South Wales and Queensland have introduced reforms.

Recent reformsInfrastructure Australia

Infrastructure Australia (IA) was established in April 2008 to assist the Federal Government in identifying and prioritising the delivery of public infrastructure.

IA was established as a statutory advisory council under the Department of Infrastructure and Regional Development. The Infrastructure Australia Act was then amended in 2014 to restructure the agency as an independent statutory body.

IA serves as an independent advisor to government, investors and infrastructure owners on issues relating to:

– Australia’s current and future infrastructure needs

– Mechanisms for financing infrastructure investments, and

– Policy, pricing and regulation and their impacts on investment.

One of IA’s key functions is to produce the Infrastructure Priority List, which sets out the projects that IA considers to be central to strengthening the economy, dealing with sustainable population growth, export bottlenecks, urban congestion and/ or climate change. Importantly, IA does not determine Commonwealth funding of projects; this remains with the Government.

4

MAKING THE MOST OF INFRASTRUCTURE VICTORIA

4

The political mandate for the establishment of IA was to end the perceived under investment in public infrastructure, buck-passing and pork-barrelling, and to provide long-term planning for governments to predict and anticipate infrastructure needs rather than reacting to them.

Infrastructure NSW

Infrastructure NSW (INSW) was established in July 2011 to assist the NSW Government in identifying and prioritising the delivery of critical public infrastructure for NSW. INSW is an independent statutory agency, established under the Infrastructure NSW Act 2011.

The Government’s mandate for INSW was to remove politics from infrastructure decision making, and to deliver the right infrastructure projects on time and on budget.

INSW is charged with coordinating infrastructure planning across the whole of government while engaging the public and private sector. Outlined by the Premier in NSW Parliament, the intention of establishing INSW was to secure the efficient, effective, economic and timely planning, coordination, selection, funding, implementation, delivery and whole-of-lifecycle asset management of infrastructure required for the economic and social wellbeing of the community, with decisions informed by expert professional analysis and advice.

The principal tasks of INSW are to advise the Government on infrastructure priorities and assist government agencies in reviewing the delivery of major projects over $100 million. Infrastructure priorities are advised through the development of

a 20-year State Infrastructure Strategy and 5-Year Infrastructure Plans which identify specific priority projects.

While INSW aims to address the shortcomings of political project selection, project selection remains with Cabinet.

Property & Infrastructure Cabinet (Queensland)

The Newman Government established an Economic Infrastructure Prioritisation Framework as an initiative to deliver a more disciplined approach to infrastructure investment in Queensland. The framework was to be implemented by the Property and Infrastructure Cabinet, with the expanded role of prioritising projects from a whole-of-government perspective, and overseeing the development of a 10-year state infrastructure plan.

While this approach may have delivered the potential for improved project prioritisation and integration, the perceived lack of independence from Government did not overcome the potential shortcomings of political influence on project selection. In response to this, the recently elected Palaszczuk Government made a pre-election commitment to establish an independent body called Building Queensland to prioritise infrastructure projects.

This broad review suggests that while recent reforms have enabled elected governments to receive expertly prepared, independent advice from a whole of government perspective in relation to infrastructure needs, options and preferred projects, the final selection of projects remains with elected officials.

5

Expert panel presentations (and facilitated discussion)The expert panel members picked up at this point. Although the manner in which they articulated their recommendations varied, the expert panel members broadly agreed on the following eight points:

1. Infrastructure is fundamentally important to Victoria’s competitiveness and standard of living. By its very nature, physical infrastructure is the backbone on which important state growth, development and sustainability objectives are built.

2. Chopping and changing Government commitments to major infrastructure projects imposes significant costs on Victorians. This includes wasted project planning and development efforts, important project alignment and sequencing dis-benefits, and the significant uncertainty that is introduced into a raft of private and public investment decisions.

3. Commitment to infrastructure projects must align with a long term (and hopefully bipartisan) infrastructure strategy for Victoria. That is, infrastructure project funding and contracting needs to be depoliticised.

4. To effect this de-politicisation, there is a clear need to:

a. Undertake long term infrastructure planning to support Victoria’s development

b. Develop a rolling and evidenced based, long term infrastructure strategy that identifies, integrates, costs, assesses, priorities and sequences significant infrastructure projects across Victoria, and

c. Better coordinate this infrastructure planning process across the numerous silos of government (and related agencies).

5. IVIC should play these roles and must be positioned as a truly independent, credible, transparent and consistent advisor to government.

6. IVIC needs to be linked in with the central agencies of government but must act at arm’s length.

7. IVIC cannot be comprised of infrastructure and development planners only, it must also include project delivery skills. Otherwise the developed strategy may be unworkable.

MAKING THE MOST OF INFRASTRUCTURE VICTORIA

6

8. IVIC should aim to greatly enhance project delivery (esp. transport) by developing project scopes, for priority projects, with defined corridors and land acquisition needs, enabling governments to minimise long term investment requirements, as well as improving certainty surrounding funding envelopes and accelerating procurement times.

The key area where there was some difference in opinion amongst panel members related to whether or not IVIC should actually select projects for funding (i.e. given a certain, annually determined budget envelope). One side of the debate suggested that this process was too important to be left to politicians, whereas the counter view highlighted that elected governments were in the best position to perform this role.

This disagreement emphasises that if IVIC is established to operate on a truly independent and credible basis, this will hamper the ability of politicians to prioritise projects that do not align directly with the proposed composition and sequencing of the IVIC developed long term infrastructure strategy.

The facilitated discussion that ensued reinforced the points described above. It also added two additional points.

In respect to the prospective sectoral focus/ work program of IVIC it was highlighted that, in terms of shaping our cities and therefore our future economy, only major transport projects can be considered to be truly city shaping. That is, transport infrastructure determines how our cities will evolve in future and, once established, the vast bulk of remaining infrastructure items can be spatially located and sequenced in line with these established patterns. In turn, it makes

sense for IVIC to prioritise integrated land use and transport strategizing initially, with non-transport infrastructure items addressed after this initial phase of work. However, assuming the role of strategic integrated planning may duplicate the role of the Metropolitan Planning Authority (MPA) and/ or the Department of Economic Development, Jobs, Transport and Resources.

The facilitated discussion also highlighted that the grounds for establishing INSW and IVIC were borrowed from the Rudd Government’s IA initiative. The perspective was put that the Commonwealth Government focusses on largely a-spatial issues such as defence, foreign policy and social welfare, and knows comparatively little about cities and regional development. State governments, on the other hand, should clearly understand how infrastructure shapes the economy and the pattern of urban development.

The fact that the Victorian Government has opted to mimic Commonwealth and NSW policy may well be an implicit admission that, structurally, the State Government may suffer the same disconnect with cities and the spatial economy that the Commonwealth does. This may reflect the ongoing difficulties and the enormous effort required to effect coordinated infrastructure planning and development across government. It may also reflect the ongoing mismatch between spatial interest groups (‘local’ communities) and the ‘regional’ mindset required to develop and implement state and regionally significant infrastructure projects.

Given that the Victorian Government has committed to established IVIC, these ongoing coordination and representation difficulties make it essential that IVIC reports directly to the Premier and interacts robustly with central agencies.

8

Contact us

CANBERRA

Level 6, 39 London CircuitCanberra ACT 2601

+61 2 6263 5940sgsact@sgsep.com.au

HOBART

Unit 2, 5 King StreetBellerive TAS 7018+61 (0)439 941 934

sgstas@sgsep.com.au

MELBOURNE

Level 5, 171 La Trobe StreetMelbourne VIC 3000

+61 3 8616 0331sgsvic@sgsep.com.au

SYDNEY

Studio 2.09, 50 Holt StreetSurry Hills NSW 2010

+61 2 8307 0121sgsnsw@sgsep.com.au