Children of the Contract Revolution

13 July 2006

The Age

By Rod Pearse
CEO & Managing Director
Boral Limited

Are governments throwing the business baby out with the bath water through unreliable infrastructure planning and policy, asks Rod Pearse.

For some time the private sector, led by the Business Council of Australia, has been pressing governments around the country to take a long-term view on infrastructure needs including ports, road, rail and water.

The key point is that long-term and coordinated planning is needed by governments to facilitate investment on the scale and quality that business and the economy requires to support future growth.

Roads, rail and ports are the building blocks of Australia's modern economy and for the nation. They play critical roles in facilitating international trade, particularly for a nation such as Australia, which is deeply linked with the global economy, but at the same time remote from many of the world's major markets.

Making sure that basic infrastructure meets growing demand is also a critical community issue. Traffic congestion, energy blackouts and water restrictions erode fundamental living standards and lifestyles.

The Australian economy has grown by 40 per cent in the past decade, but our basic infrastructure has not grown at a comparable pace.

Planning and investment by governments has, until recently, been sporadic or not been given the priority it deserves.

The result is that the infrastructure bottlenecks that we have witnessed in recent times – in our ports, urban transport and water resources – are placing speed limits on economic growth and on improvements in standards of living. Federal and state governments are now responding with a reinvigorated national commitment to infrastructure reform through the Council of Australian Governments.

Individually, the states are also elevating infrastructure planning to an issue of prime importance and are actively planning for their own unique issues.

The Victorian Government has released a range of papers that consider transport, water and urban congestion issues, and outline the way forward.

Queensland and NSW have developed long-term plans that seek to tackle future growth needs with specific infrastructure programs.

One of the BCA's key arguments put forward is that recent problems are not due to scarcity of funding. Australia is a wealthy and prosperous nation that can call on significant private investment to help with funding of future infrastructure.

It is logical that public-private partnerships (PPPs) can be used to meet many of our infrastructure shortfalls, particularly as state governments are now turning to debt financing to fund some of the infrastructure shortfalls.

But a shortage of planning and policy certainty in recent years will act as a brake on potential private involvement for some time.

While governments are placing high policy priority on getting the public policy frameworks right for future investment, there remain several major projects that have been highly politicised, or which are subject to conflicting regulatory regimes. There continues to be significant uncertainty for investors and project planners.

EastLink and the ongoing political and public debate about tolls is one example.

In NSW, where there is an acute need for infrastructure, the issue of infrastructure provision is a burning political issue. The Cross City Tunnel remains a political football and is throwing a cloud over future PPPs.

Business investment is attracted to PPPs where there is an appropriate balance of risk and return. The growing use of PPPs by governments has seen the development of complex contracts designed to specify responsibilities, governance structures and risk allocation.

Ultimately, business needs to be confident about the policy and regulatory environment and that there is a stable long-term political and policy framework conducive to investment.

Governments need to demonstrate they have the credentials and processes to make major PPPs work.

From a project management perspective, governments need to demonstrate consistently that they can manage the unique risks associated with political and public perceptions around private investment in public infrastructure.

More focus is needed on:

  • Government agencies working together on major project infrastructure development.
  • More transparent and robust assessment criteria in assessing the potential for PPPs.
  • Cost-effective processes for the evaluation and selection of potential partners.
  • Transparent frameworks for sharing risks and benefits.
  • Transparent and timely state and local government planning approval processes.

PPPs are important in helping ensure that infrastructure is developed in a timely way to meet Australia's future needs.

But business needs certainty. The reality is that business confidence in the PPP process and outcomes will take some time to rebuild.



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