Infrastructure

Depoliticising Australian Infrastructure

8 Jan 2019, by Amy Sarcevic

Throughout Australia, and around the world, there are a tremendous number of infrastructure projects in the pipeline. This makes for a competitive playing field in which countries and jurisdictions with the most attractive conditions are favoured by bidders and investors.

In the past, Australia has fared reasonably well in relation to some of its global peers, but a recent report by Infrastructure Partnerships Australia showed a 24 percent year-on-year drop in investment likeliness for Australia with fewer than half of survey respondents finding the nation ‘attractive’.

In a national context, there is added competition between jurisdictions and the risk of procurers being further marginalised by contractors and financiers. Why is this an issue? With decreased bidder and investor appetite, applicants are less inclined and incentivised to bring innovation and take risk on the local pipeline, meaning that less favourable deals (from a government perspective) are being struck.

So what makes an infrastructure project ‘unattractive’? If multiple recent reports are anything to go by, the answer is simple – politics. A study by law firm DLA Piper, for example, showed that 70 percent of investors have been put off from backing certain projects due to political uncertainty and the prospect of a politically-induced delay.

Who can blame them? With politicisation comes political risk and an increased likelihood that deals will be scrapped and withdrawn from the market if political circumstances change. It also leaves investors exposed to the increased risk of unforeseeable changes in law during the delivery phase – increasing the likelihood of distressed projects. Jurisdictions that have depoliticised infrastructure naturally gain a competitive advantage.

On a broader scale, the politicisation of factors which drive infrastructure demand (e.g. immigration policy, land use planning, and trade and industry development); is also an issue. Peter Dutton’s recent abolishment of the 457 visa, his reclassification of the 190,000 annual permanent resident intake as a ‘ceiling’ instead of a ‘target’; and, Gladys Berejiklian’s recent call for yet more of a reduction on permanent migrants in NSW may well impress voters. But for global infrastructure contractors and investors, these politically-influenced fluctuations in population growth can be seen as major red flags.

Then, there is the politicisation of the funding, finance and delivery models which underpin projects. The proportion of public funding, the size and nature of loans, the type and structure of PPPs – all make for powerful pre-election propaganda. But they create a sense of instability from a bidder and investor perspective.

Aside from thwarting investor appetite, pre-election pressure to appease voters can often go against the nation’s best infrastructure interests. Asset recycling for example has shown great success in New South Wales and Victoria, but, since infrastructure privatisation can often be superficially unpopular with voters, other states, such as Queensland, have been less willing to adopt this approach.

Politicisation has also been shown to be to the detriment of the tax payer – particularly when projects are committed in spite of their lack of investment merit. This applies to a surprisingly large percentage of infrastructure projects, according to a Grattan Analysis of the Deloitte Investment Monitor. It found that one third of projects between 2000-2015 had been publicly committed before a formal funding arrangement – and that projects of this nature were much more likely to run over budget.

Sydney’s WestConnex is one such example. The Coalition and Labour Government publicly committed $1 billion to WestConnex before a business case had been completed by Infrastructure Australia. Seventeen billion dollars later, and an external audit revealed that the project did not deliver value for money for the tax payer. Similarly, the highly political Princess Highway Duplication in Victoria was found to deliver only eight cents worth of benefit per each dollar spent.

So, where to now?

The literature is consistent – let’s remove politics from infrastructure. But how? The “Remarkably adaptive: Australian cities in a time of growth” report released late last year by the Grattan Institute offers some sturdy recommendations, as does Consult Australia’s “Infrastructure Governance in Australia” report, published in early 2018. But the overarching recommendation – to provide a coherent, national strategy for infrastructure development – is not a trivial undertaking. With multiple lines of accountability – nationally and between jurisdictions – and copious stakeholders involved, developing a coordinated and politically-unbiased strategy remains a significant challenge.

In light of this, the Australian Financial Review’s National Infrastructure Summit and Informa’s National PPP Summit will provide a platform for national discussion on infrastructure depoliticisation and development. Bringing together Australia’s chief policy makers, analysts, investors, contractors, procurers and academics, the events will pave a pathway for Australia’s journey towards world-class, livable cities.

 

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