Sydney 2016: Strategies to finance and deliver major infrastructure projects

  • November 4, 2016
By Simon Kennedy and Charlie Taylor
On November 4 in Sydney, thirty-five senior executives and government leaders convened to discuss strategies that drive innovation in planning and city deals, asset productivity, and private sector investments.

MPs joined CEOs, investors and executives from leading national and state infrastructure service providers to discuss creative outcomes to this challenge.

Context: Australia’s investment in transport infrastructure is a constant source of debate. Despite its government spending ~$25 billion annually on roads over the past three years, Australian cities are becoming more congested with the cost of congestion now over $16 billion per annum. As the number of people in Australian cities grow, and technologies evolve, so does the opportunity and need for improvements in road and rail performance.

New South Wales is perceived as a world leader in innovative infrastructure delivery, and for the scale of investment. It wants to continue this journey and lead the world on transportation outcomes from its investments. This roundtable engaged in two topics:

  • Urban transport strategies to enable growth and reduce congestion
  • New approaches to financing infrastructure

Some of the key themes and insights are detailed below:

  1. Australia’s relative GDP spend on infrastructure is high but the quality is sometimes low. According to the WEF Transport Infrastructure Quality Ratings, Australia lags the OECD average with specific challenges in city congestion and journey time. Australia’s avoidable congestion costs are at $16.5 billion per year.
  2. NSW is leading the world in Transport investment and project delivery. NSW’s capital plan of $70B over the next four years is one of the largest infrastructure spending programs anywhere in the world. NSW has consistently led the world in innovations in project delivery and financing and continues to do so with a large slate of significant infrastructure investments.
  3. Governments are financially constrained in their ability to improve the situation. Budgetary obstacles and fiscal constraints are likely to result in a decrease in federal funding for infrastructure projects. This places the emphasis on the industry to innovate to deliver the required outcomes at a lower cost.
  4. Innovative demand management on roads has had much success in the US. “Urban Partnership Agreements” have seen innovation driving up the productivity of existing road assets. Specifically, demand management techniques on US roads, such as Performance Priced Lanes and increasing Bus Rapid Transit have seen benefits broadly spread across the economy with 90% of the people using them 10% of the time and strong public support. Most new road construction in the US now incorporates Performance Priced Lanes.
  5. Government can look to innovative through pilots. Evidence from Sweden, the US and other jurisdictions have shown pilot based innovations in transport policy have been highly effective. New road demand management pilots have mostly resulted in the piloted changes being endorsed and widely accepted.
  6. Pursue integrated master planning, linking jobs to housing and transport. Better bipartisan coordination between the private sector, State and Federal agencies will help improve outcomes. London is a good example of best practice. Reducing the dependency on policy and moving towards a market-based approach that incentivises the private sector to innovate will help unlock projects (e.g. Sydney Airport). Can we do this with other infrastructure assets?
  7. Improve the utilisation of existing assets through technology. New South Wales needs to be creative in finding ways to increase capacity of existing infrastructure by using demand management and technology. Small technology installations can result in big returns. Also, transport infrastructure also needs to be ready to adapt to new technologies like autonomous vehicles and connected vehicles. Collectively, these technologies could add 15% capacity to existing roads.
  8. User pay works as long as the benefits are clearly communicated. Various demand management systems have been successfully implemented around the world. Many of these systems—such as dynamic congestion charging and hot lanes—could be piloted in NSW. Treating users as customers goes a long way in getting buy-in to adopting a new system.
  9. Better prepared business plans will improve the pipeline. With public and private money available for good projects, bankable business plans are what is lacking. Improved plans, embracing innovative financing, revenue and delivery models need to be prepared and presented to government. “There is lots of room on the balance sheet.”
  10. Government can play an enabling role. As experienced in the UK, government can play an enabling role in delivering infrastructure. Prioritising projects, creating certainty around the planning process, and encouraging unsolicited bids can go a long way to incentivise the private sector to innovate and streamline the delivery process. Government can also help fix the market failures that often exist due to timing and associated risk challenges.
  11. Creating sustainable revenue streams is a key aspect of bankable projects. Pursuing innovative strategies to attain value capture (e.g. transit oriented development for rail),
  12. Shift the procurement process to be less prescriptive, enabling innovation. Streamlining the procurement process and incentivising the private sector to innovate will save costs and reduce time.

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