21 August 2005

The Business Council of Australia has called for a biennial ‘state of the nation’ audit to assess the adequacy and performance of Australia’s key infrastructure.

The BCA has set out the structure and criteria for the audit in a detailed recommendation to the Council of Australian Governments (COAG).

It has dismissed as ineffective the agreement reached at COAG’s meeting in June under which each state and territory would submit separate five-yearly reports on infrastructure to COAG.

Chair of the BCA’s Sustainable Growth Task Force, Mr Rod Pearse, said effectively functioning infrastructure was fundamental to the health of the Australian economy and to the prosperity of the community.

“It is essential that there is publicly available, reliable and accurate information detailing the current state of Australia’s infrastructure,” he said.

Mr Pearse said a more comprehensive, regular state of the nation audit conducted by the Productivity Commission would substantially improve the planning, development and performance of Australia’s transport, energy and water supply systems.

The BCA’s recommended model is for a ‘performance’ and policy audit that focuses on:

• performance outcomes.
• ‘fitness for purpose’ of the infrastructure.
• the supply/demand balance.
• impediments to the infrastructure investment.

Mr Pearse said BCA research showed high economic growth rates of 4 per cent would be possible only through the reform of key elements of the economy, including infrastructure provision and management.

“We have designated the Productivity Commission as the best equipped organisation to co-ordinate the audit because it has the necessary expertise and resources and capability to ensure continuity of the management of the process and data,” he said.

“A two-yearly audit, conducted as a single, coordinated exercise, would ensure consistency of methodology, regularly published information, transparency and would generate a credible national assessment as the basis for critical decisions on infrastructure development and management.

“In comparison, the sequential five-yearly audits proposed by COAG would not paint a clear picture of national infrastructure needs or performance, nor would it necessarily overcome the current problems – predominantly, a shortfall in infrastructure to meet Australia’s growth needs, and the lack of co-ordination between the jurisdictions.”

Under the BCA proposal, the Productivity Commission would issue the required reporting frameworks, and then seek the audit data – particularly on supply/demand balance and performance – from relevant entities that in their normal course of business would be producing such information.

It would then assess the adequacy of the data and comment in the audit on its appropriateness for decision-making.

The BCA recommendation outlines deficiencies in the current system of infrastructure management, including that:

• Accountability for infrastructure provision is often unclear, including across the different tiers of government and between the private and public sectors.
• There is a lack of consistent and consolidated data available and in many cases, a lack of a clear baseline against which performance can be judged.

Mr Pearse said the audit model aimed to minimise the red tape burden on businesses by utilising their existing performance data and risk management and reporting activities.

“A regular, forward-looking audit will bring essential business disciplines to this most important bedrock of Australia’s economic performance,” he said.

“It will enable governments and the community to understand that money being spent, policy changes or other measures are having their intended effects.

“We need to look forward and be confident that our future infrastructure can deliver what is expected of it, drive growth and help lock in Australia’s economic prosperity for the long term.”

BCA’s Criteria for a State of the Nation Audit

Is the current supply of infrastructure adequate to meet demand, now and in the foreseeable future? Most of this work would be undertaken by the responsible entities against frameworks supplied by the Productivity Commission.

How is the infrastructure performing based on particular indicators? These could cover such issues as rail speed restrictions and electricity network reliability. Again, this information can be sourced by the responsible entities.

Are there any impediments to the required spend needed to increase investment or operational performance being provided in a timely fashion, or any form of distortion to appropriate decision-making? These may arise due to government policy, planning and regulatory issues, unclear accountability for infrastructure planning and performance, or other issues to do with work practices. For example, the audit could highlight the impediments to investment in electricity transmission in the form of the current regulatory test and through the various planning processes.

Are appropriate service standards being set and regularly monitored for monopoly infrastructure? It is often difficult for the public (and indeed regulators) to assess infrastructure performance and the need for expenditure because the level of service that is meant to be provided is not made explicit.

Is the data that is needed being collected and made available? The Productivity Commission will quickly identify where data is inadequate for it to conduct an appropriate audit. In some cases, for example, the data on the supply and demand balance or to monitor performance may not be being collected.

Are any problems caused by inadequate attention being paid to externalities? Within the infrastructure sector such considerations can be very important. They may be factored into some investment decisions and not into others in ways that cause significant distortion. Consideration of investments in road and rail needs to factor in the relative impact each has on the level and cost of accidents.

Is international experience relevant to Australia’s infrastructure performance and pricing? It is not intended that international benchmarks be pursued as a general rule. There will be occasions, however, when this may be relevant, such as overseas pricing and demand responses, or overseas approaches to particular issues.

Are there any immediate investment priorities that require focus? It could be, for example, that clear gaps in investment planning can be discovered, or that projects with very high benefit/cost ratios keep being left out of investment plans for whatever reason.

The audit should provide recommendations for action where appropriate. As implied from what has been mentioned above, these could cover:

• Action to address impediments to investment or the action required to increase performance.
• Investment priorities to address particular gaps or performance issues.
• The need for the collection of certain data.
• Recommendations on how decision-making or overall infrastructure planning across all jurisdictions could be improved.

The following is an indication of the likely output of some sectors. It is indicative only and represents a small part of the intended output.

Electricity

• Likely supply and demand scenarios for generation.
• The likely growth in both average and peak demand.
• Transmission constraint levels and their effect.
• Network faults and reliability.
• The responsiveness of demand to prices.
• Investment impediments due to policy settings, regulatory hurdles, planning issues.
• International comparisons with prices in each state or territory to assess Australia’s continuing energy competitiveness.

Water

• Likely supply and demand scenarios for urban water.
• The extent and nature of system leakage or other wastage in urban and rural areas.
• The extent of physical water restrictions.
• Comparisons of prices (and pricing approaches) and demand between jurisdictions and with international experience.
• The extent and ease of water trading, and continuing impediments to this.
• Salinity and other measures of river health.
• Impediments to the required investment, or to improving operational performance.

Land transport

• Levels and trends in traffic congestion in urban areas and projections based on certain scenarios.
• Reliability, availability and travel times for particular rail and road freight journeys.
• The level and extent of speed restrictions on rail lines.
• Impediments to the required investments, or to improving operational performance.

State of the Nation Infrastructure Audit Recommendation