The pipe dream of a national infrastructure pipeline

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While politicians and bureaucrats pay lip service to the aspiration for a national, long-term and bipartisan infrastructure plan, the reality is as far away as ever, writes Max Berry.

THE Australian Financial Review's Infrastructure Summit, held in Sydney earlier this month, heard several times of the need for a long-term plan to build and coordinate major projects in order to meet demands.

These included congested roads, capital cities choking at their seams while regional centres wither, a doubling of the freight task in the 20 years to 2030 and ever more apparent climate change now threatening some coastal homes.

While four out of ten of the “most liveable cities” worldwide are Australian, the cost of congestion is estimated to rise to $51 billion by mid-century without major changes.

Some of our leaders apparently believe the nirvana of a national infrastructure plan is within reach as they speak earnestly of lofty plans for coordination between the states and territories and planning beyond the electoral cycle of three or four years — at most.

While a small group of inner Sydney residents protested outside the conference venue against the WestConnex toll road that threatens the amenity of their suburbs – or their very homes – Infrastructure Australia chairman Mark Birrell told the AFR’s second National Infrastructure Summit that Infrastructure Australia aimed to produce a 15-year plan in conjunction with the Council of Australian Governments (COAG).

Josh Frydenberg, Minister for Resources, Energy and Northern Australia, backed the call for a national plan but couldn’t resist – coming as his speech did in an election campaign – politicising his call by attacking the ALP’s policy of banning the “safe harbour” rule for corporate borrowing which, he claimed, would restrict much-needed private sector capital for infrastructure.

ALP transport spokesman Anthony Albanese returned fire, accusing the Coalition of failing to fund infrastructure projects like Inland Rail, or support the establishment of an authority to consider and plan his ultimate infrastructure ambition — a high-speed rail network linking the east coast capital cities. Both politicians thereby made a mockery of the declared goal of a long-term plan that can survive changes of government. 

Well, good luck with that long-term plan. Here are some of the challenges – even without the politics – that need to be overcome before a national infrastructure plan becomes a reality.

Incompatible state railway networks

While the mainland capital cities are connected by standard gauge rail links, all three eastern mainland states still have different track widths in their hinterland networks. This incompatibility restricts competition between train operators because trains can’t move around as freely and raises freight costs for farmers. The piecemeal conversion of Victoria’s broad gauge lines – for example, under the soon-to-start Murray Basin Rail Project – does nothing to overcome the dual network problem and mismatch points, where broad gauge and standard gauge lines intersect, will remain. Meanwhile, Queensland retains a narrow gauge rail network which, apart from being incompatible with neighbouring NSW, restricts freight train payloads and productivity.

Yet there is no national plan for rail gauge standardisation. There also is a vast array of interstate differences in rail systems – some serious like different signalling systems, down to silly nuisances like different colour hi-viz vests required in different states – that are being tackled only now by the new Office of the National Rail Safety Regulator, which came into full national operation only this year.

Mixed messages on the Melbourne-Brisbane Inland Rail project 

This project apparently has bipartisan support, being a longstanding National Party priority for its clear benefits in getting grain, beef and wool more efficiently to ports for export and also enjoying the enthusiastic backing of the ALP’s transport spokesman Anthony Albanese. The Federal Government has so far committed about $900 million of the estimated more than $10 billion cost, but there is no word yet on how the remaining 91 per cent of the cost will be raised and by whom. There was speculation that the Federal Government would issue 30-year infrastructure bonds to fund the project and avail itself of record low interest rates, but any such announcement has been deferred until after the election.

There are further complications. While the Ffderal Australian Rail Track Corporation depicts on its website and in its announcements a firmly settled project, a private consortium is promoting a different route for the project at the southern end, contributing to project delays. Then there’s the Coalition’s revived plan to privatise ARTC, which will be studied by the Finance Department if the Turnbull Government is returned. How a privatised ARTC would manage the construction and operation of the Inland Rail project – along with all the other ARTC lines – without major competition issues is unclear.

If the plan is to borrow the funds needed, allow ARTC to build and operate Inland Rail until it is bedded down and then sell ARTC at an enhanced value to pay off the debt, then that means waiting more than the 10-year construction phase. So ARTC privatisation isn’t an answer to growing debt and deficits any time soon.

And the benefits of Inland Rail, including a positive benefit-cost ratio of 2.62 (Melbourne’s abandoned East-West Link had a BCR of 0.45), do not seem to have persuaded the CEO of the new Infrastructure Victoria, Michel Masson.

Lloyd’s List quoted Mr Masson at a transport forum saying of Inland Rail,

“This is typical of a solution that is looking for a problem and there is absolutely no identification of what we are trying to solve at the level of this train.”

Equally worrying for the prospects of a national infrastructure plan is the lack of formal links between Infrastructure Victoria – and, presumably, its interstate counterparts – and Infrastructure Australia, according to Mr Masson, quoted in the same Lloyd’s List report. The two agencies simply “worked closely together”.

The Andrews Government’s ambivalence towards Inland Rail is further suggested by its abandonment of a port-rail shuttle in Melbourne as a condition of the port’s imminent privatisation. Port bidders are required to show a plan for a shuttle without needing to commit to actually implement the plan. The full benefit of Inland Rail can be realised only if trains can deliver export freight all the way to the port, rather than unloading it at a terminal on the urban fringe and travelling the final few kilometres by truck. By contrast, NSW is showing the way with a port-rail shuttle to Sydney’s massive Moorebank terminal.

Meanwhile, the Andrews Government is proceeding with planning for a toll road in the port precinct that will likely lock trucks in – and trains out – for port container movements. It is circumventing its own new infrastructure body and planning process to fast-track the Western Distributor project. The Andrews Government’s hypocrisy after criticising the previous Abbott Government for bypassing Infrastructure Australia to fund East West Link is stark.

Market-led infrastructure projects

The very concept of “market-led” (read unsolicited) proposals by private corporations is at odds with a national long-term infrastructure plan that only governments can deliver. But with funding pressures increasing, state governments have enthusiastically embraced market-led proposals or public-private partnerships. As noted above, Transurban, which enjoys a near-monopoly on toll roads in Australia, has won the Andrews Government’s support for its unsolicited Western Distributor project, thereby answering political pressure to alleviate congestion on the West Gate Bridge. 

Road funding pressures

An emerging trend to electric vehicles will reduce the amount of fuel excise collected, and with it the funding available to build and maintain roads, as Transurban CEO Scott Charlton told the conference. A COAG pilot of a new road pricing system for trucks has no certainty of implementation.

Road pricing certainly will draw the resistance of road interests, which include government agencies such as VicRoads as well as private companies and peak bodies. Congestion charges on motorists such as London exacts are new territory here. And mass-distance-location pricing for trucks faces an uphill battle against a powerful lobby of truck companies that flexed its political muscle in the recent abolition of the Road Safety Remuneration Tribunal. The Australasian Railways Association has been campaigning for MDL-based road pricing for 40 years without success.

Until there is some clarity around future road funding sources, forget any long-term infrastructure plan by an ever-changing group of governments that can barely meet current pressures, let alone plan for the future.

High-speed rail – the mirage recedes

The conventional wisdom that a high-speed rail (HSR) network in Australia would be a “white elephant” due to a smaller population is an argument with decreasing accuracy over time as our population rises and the major capital cities expand at the expense of regional centres. Greater Melbourne’s share of Victoria’s population will exceed 80 per cent and overtake Sydney’s population on current trends by mid-century.

NSW and Queensland are doing better at decentralisation but face similar challenges in the primacy of their capital cities. And, despite a smaller population, the Melbourne-Sydney route is “touted” as the most congested in the world.

Australia’s lack of political will – Albo and a few converts aside – to seriously consider HSR stands in contrast to the UK, which has now firmly committed to high-speed rail under a project and authority known as HS2. The UK faces similar centralisation challenges in the primacy of London at the expense of jobs and opportunities in the midlands and north of England and HS2 tackles that challenge in two phases.

Phase One will link London and Birmingham with 300-kmh trains; Phase Two will link Birmingham to Leeds and Manchester. David Higgins, chair of HS2, says high-speed rail gained bipartisan support in the UK when its proponents changed the argument from train speeds to passenger capacity, and the greater ability to commute from regional centres.

Apart from simply greater population, the ability to tap private capital is part of the story of HS2’s successful birth. The lift in land values along a HSR corridor and “value capture” by investors is a big part of that ability to attract private funding. Anthony Albanese has failed to win support for HSR from even his own party, proposing a High-Speed Rail Authority in a private member’s bill.

Tapping private-sector capital for infrastructure

Conference speakers were in furious agreement that new mechanisms are needed to tap private funding for infrastructure.

Assistant Cities Minister Angus Taylor pointed out there was plenty of money in super funds and that infrastructure projects delivered stable long-term returns to investors. “The problem is not the money” he said, almost in frustration at the mismatch. Fund investors – and governments – need a stable long-term return that is only just above the long-term bond rate to induce investment decisions.

With a former merchant banker as prime minister – and another Rhodes Scholar and financier as cities minister – innovative funding mechanisms should not be too difficult to find. But, ultimately, this means more user-pays projects.

So in one of the world’s richest countries, let’s build a little bridge — and get used to paying tolls for the privilege of driving our imported cars over it.

You can follow Max Berry on Twitter at @maxberry_.

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