Pipeline or Pipe Dream? New Research Uncovers What’s at Stake If We Don’t Get It Right on Major Projects

High costs and low productivity are risking Australia’s unprecedented $921 billion pipeline of investment in resources, energy and economic infrastructure, new research for the Business Council of Australia has found.

In a landmark study released ahead of next week’s economic forum in Brisbane, the BCA has for the first time provided a total picture of how capital investment is driving the economy.

Pipeline or Pipe Dream? Securing Australia’s Investment Future highlights how important the effective delivery of major projects will be to the future shape and health of the economy and living standards. It reinforces that Australia’s massive pipeline of investment is much broader than the resources sector.

“Our research shows that capital project investments are the main show in town in Australia’s economy and will be for some time,” BCA President Tony Shepherd said.

“The story of our massive investment pipeline is really about an economy-wide investment boom, not just a mining boom, but what is clear is this investment is far from assured.

“We are becoming a high-cost and thus high-risk place to invest, and low labour productivity compared to other nations has reduced the competitiveness of our project delivery.

“This is not only placing future projects at risk but is also undermining the efficiency of existing projects, which could mean less money for subsequent investment and lower tax revenue impacting the whole community.

“Half of the $921 billion pipeline is not yet locked in, and how much of it gets delivered will depend on taking the steps required to make our economy more competitive.

“What is at stake if we don’t deliver on the pipeline is the opportunity to transform our cities, regions and communities through economic and social infrastructure, job creation, skills development, and growing government revenues to provide quality services to our ageing population. In simple terms, if we cannot deliver the pipeline more efficiently our standard of living will be reduced.

“We acknowledge that some steps have already been taken by governments on some fronts, most notably the COAG streamlining of environmental assessments and approvals, the boosts to skilled migration and skills training, and the introduction of Enterprise Migration Agreements.”

“But what is clear is that all governments must recognise the pipeline of investment is not assured and must stay focused on taking a proactive approach to making the economy more competitive,” Mr Shepherd said.

Key findings of the study include:

• by 2013 about 30 per cent of all economic activity will depend on the success of capital investments, making us the most investment-intensive economy in the OECD
• Australian resources projects are 40 per cent more expensive to deliver than in the US Gulf Coast
• Australian labour is typically 35 per cent less productive than in the US Gulf Coast for resources projects near cities, and 60 per cent less productive for projects in remote locations
• infrastructure is estimated to cost much more to deliver in Australia than the US, with airports 90 per cent more expensive, hospitals 62 per cent, shopping centres 43 per cent and schools 26 per cent more expensive
• major productivity problems, labour shortages and planning approvals and conditions are all contributing to delays and project costs
• major projects are numerous, with 72 of 160 projects worth more than $1 billion already underway
• the average resources or infrastructure project is worth $1.5 billion, up from $294 million in 2001
• Australia’s largest ever capital project was Pluto stage 1, valued at $14 billion, but there are now nine projects either underway or about to start worth between $14 billion and $43 billion.

“To put the size of these projects into context, in today’s dollars the cost of the Snowy River Scheme would have been around $8 billion,” Mr Shepherd said.

“Australia recognised what a great nation-building project the Snowy Scheme was, in terms of opening up our agricultural market, providing low-cost hydro electricity, the innovation that flowed from it, and the cultural enrichment from welcoming people from different parts of the world.

“Right now we’ve got eleven projects that are bigger than the Snowy and the benefits that these and other projects will provide will also be long-term and equally as transformative.”

The BCA research is thorough and draws on 15 years of project performance data in Australia and internationally to assess how Australia performs in delivering major resources and industrial projects. On infrastructure, the study draws on the best and most up-to-date research available.

Mr Shepherd said the new study has guided the Business Council in developing a package of recommendations to take to next week’s economic forum. These include recommendations to:

• build higher levels of community understanding and acceptance of the importance of growing our economy and population, as well as of individual projects
• ensure a more concerted effort by government to undertake regional economic development in those communities impacted by growth of major projects
• expand Australia’s capacity to deliver multiple capital projects by growing and developing the workforce, and through open and competitive markets for labour, materials and equipment
• improve project delivery efficiency by streamlining and improving planning approvals processes and outcomes, building capabilities for project design, innovation and management while lifting workplace productivity
• support investment and infrastructure delivery by developing growth strategies, improving strategic planning and unleashing private investment into public infrastructure, and developing infrastructure markets coupled with greater private ownership and operation of infrastructure
• build the confidence of investors to risk capital in large, long-term and complex investment projects in Australia by maintaining a predictable policy environment and fiscal stability
• ensure all jurisdictions agree through COAG the importance of consistent approaches by governments to policies and programs to facilitate efficient capital project delivery by businesses
• require the Productivity Commission to conduct a comprehensive inquiry into the factors impacting on major project costs and delivery performance in Australia, including what is driving high construction costs.

Given the importance of this issue not only for business but also to the standards of living and future wellbeing of all Australians, the Business Council of Australia is undertaking further detailed work on the causes of Australia’s high capital cost environment.

“While the findings and recommendations in this study focus on policy levers that governments control, the BCA recognises that companies have a vital role to play in lifting performance in major project planning, design and management,” said Mr Shepherd.

“We know a significant effort is needed on our part to lift project management skills across Australia.”

Pipeline or Pipe Dream? Securing Australia’s Investment Future: Overview (PDF, 1MB)

Pipeline or Pipe Dream? Securing Australia’s Investment Future (Overview and Full Study, PDF, 2MB)