Australia: New Premier addresses State's infrastructure challenges

Last Updated: 14 October 2011
Article by Stuart M Cosgriff

Six months ago Australia's most populated state, New South Wales, witnessed a change of Government and with it a fresh approach to the coordination of investment into public infrastructure. The new Liberal/National Government led by Premier Barry O'Farrell is undertaking two major reforms to improve the coordination of infrastructure delivery and bring forward the delivery of badly needed transport infrastructure.

The first of these reforms is the establishment of a new body to be known as 'Infrastructure NSW'.

Premier O'Farrell has outlined that the Government's vision for Infrastructure NSW is for it to operate as an independent body laying out a strategic direction for infrastructure delivery in New South Wales.

The primary function of Infrastructure NSW will be to coordinate and support the delivery of New South Wales' infrastructure needs. It will be responsible for the preparation of a larger 20 year infrastructure strategy and establish smaller, but more comprehensive, five-year infrastructure plans. The expectation is that each five-year plan will be detailed and fully costed, and will also include arrangements for promoting private sector participation in projects and service delivery where appropriate.

Other key functions of Infrastructure NSW will be:

  • the preparation of project implementation plans for major infrastructure projects;
  • the review and evaluation of proposed major infrastructure projects, including the risks associated with them;
  • to oversee and monitor (and potentially carry out) the delivery of major infrastructure projects identified in plans adopted by the Premier;
  • the provision of advice to the Government on matters such as economic or regulatory impediments to the efficient delivery of specific infrastructure projects or infrastructure projects in specific sectors, and on appropriate funding models for infrastructure, and
  • to co-ordinate the infrastructure funding submissions of New South Wales to the Commonwealth Government.

Interestingly, these functions will require Infrastructure NSW to have a much greater focus on project implementation and delivery than the advisory body which operates at the federal level, Infrastructure Australia. The focus on project implementation extends to granting powers which in certain circumstances, and on direction of the premier, would enable Infrastructure NSW to "step-in" to a project being delivered by a NSW Government agency.

Infrastructure NSW will be headed by Chief Executive Officer, Paul Broad, who has extensive private sector experience, including his most recent role as Chief Executive Officer of telecommunications company, AAPT. Former New South Wales Premier and experienced company director, the Hon. Nick Greiner AC, has been appointed chair of the board which will comprise of high profile public and private sector board members. Joining the board from the public sector will be the Directors-General of the Departments of Premier and Cabinet, Trade, Investment, Regional Infrastructure and Services, and Planning and Infrastructure and the Secretary of the Treasury. The board will report directly to the Premier of New South Wales.

The second major reform Premier O'Farrell is undertaking is the wholesale restructure of the portfolio of agencies responsible for the delivery of public transport, road and freight infrastructure and the provision of related services. Premier O'Farrell has announced the establishment of two new bodies to be known as Transport for NSW and NSW Roads and Maritime Services.

The restructure of the roads, transport and ports and maritime portfolios in NSW is an ongoing process. Legislation giving effect to the restructure was introduced into the NSW Parliament in August but has not yet been passed. However those aspects of the reforms which have been announced to date indicate that the Government intends to consolidate the infrastructure delivery procurement functions within these portfolios, at least as they relate to public transport.

The Government has announced that the role of Transport for NSW will be to: "take charge of major procurement and long-term planning and policy, ensuring a coordinated and holistic approach to public transport." To help achieve that it has been segmented into six core divisions:

  • Customer Experience – which will make sure journeys are as simple and seamless as possible;
  • Planning and Programs – which will consolidate planning for all modes and develop a comprehensive transport masterplan;
  • Transport Services – which will ensure transport services cost-effectively meet the current and future needs of customers;
  • Transport Projects – which will ensure major projects are delivered on time and on budget;
  • Policy and Regulation – which will develop and oversight polices and laws pertaining to transport across the State, and
  • Freight and Regional Development – which will make sure freight services and facilities meet the needs of the State economy, with particular focus on regional NSW.

The creation of a Freight and Regional Development division arguably marks a recognition by Government that the infrastructure needs of the freight industry, and the industries that rely upon, are different from the needs of the public transport sector and indeed public roads.

The overall outcome of the restructure should be that public transport networks are planned, procured and developed in an integrated fashion rather than as a series of 'free-standing' individual projects.

The task of building and maintaining the State's road network will reside with NSW Roads and Maritime Services.

The task that lies ahead of Infrastructure NSW, Transport for NSW and NSW Roads and Maritime Services is a significant one. It is widely recognised within Australia that there is a backlog of investment in infrastructure in New South Wales. This is particularly the case in the road and public transport networks such as the interconnections between elements of Sydney's orbital motorway network and expansion of the heavy passenger rail network. However, investments in the healthcare, conference and public housing sectors have also been identified as a priority by the Government.

Identifying the projects that need to be delivered and prioritising them is perhaps the easier aspect of the task ahead of Infrastructure NSW.

More challenging will be indentifying the sources of funding needed to deliver those projects. Privatisations and assets sales (such as the mooted Sydney Desalination plant concession and sale of 99 year leasehold over Port Botany) may make up some of the funding shortfall, but privately financed structures will also continue to be a necessary component of the funding mix. Developing the contracting structures to attract private sector finance will not be as straightforward for Government as it has been in the past in an environment where:

  • the return of confidence of domestic project financiers to invest in public infrastructure is in its early stages (although foreign banks are optimistic about the Australian market generally) and bond financed structures remain out of favour;
  • while debt tenors of five to seven years are now becoming readily available, debt with longer tenors, to the extent that it is available, remains expensive although greater participation by foreign banks might lead to lower pricing;
  • anecdotal reports suggest that capital held by the domestic superannuation funds is available for investment in infrastructure and there is a willingness by those funds to invest (provided that deal flow improves and greater availability of opportunities to invest in brown field projects arise), these funds have yet to make serious inroads into the infrastructure finance market;
  • the memory of a number of high-profile privately financed infrastructure projects which have faced financial difficulties both before and after the global financial crisis still lingers in the minds of many market participants;
  • the ready availability of construction work for the major builders means the preferred contracting models for delivery of infrastructure (and risk allocation under those models) necessarily remain under review to ensure that the appetite to participate in the delivery of these projects remains strong.

However, given the recent successful closing of the New Royal Adelaide Hospital (South Australia) and the Gold Coast Rapid Transit System (Queensland) public private partnerships, there is every reason to be optimistic that badly needed investment in infrastructure in NSW can now be brought forward.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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