Better Infrastructure Initiative

Speech

PFS002/2016

15 February 2016

John Grill Centre, University of Sydney

I am very pleased to be here at the John Grill Centre at Sydney University for the official launch of the Better Infrastructure Initiative.

May I first acknowledge John Grill for the leadership he has shown in identifying the need for better project leadership, and in turn taking action to establish this Centre which is training managers in this vital discipline. Of course he has backed his leadership with a very generous financial contribution—something for which not just Sydney University but the entire nation has cause to be grateful.

I also acknowledge Gary Bowditch, the Executive Director of the Better Infrastructure Initiative and author of the very significant paper which is being released today, Re-establishing Australia's Global Infrastructure Leadership.

I also acknowledge the National Australia Bank for its support of the Better Infrastructure Initiative.

It is a privilege to offer some responses to Gary's paper—and in particular to highlight the alignment between many of its themes and the Turnbull Government's agenda for infrastructure.

If there is one overriding theme I detect in the paper, it is the power of establishing markets for the provision of services.

For example, Gary argues that in telecommunications, energy and airports, among others, reforms over the past twenty years have effectively established markets—and in turn delivered great benefits to customers.

He makes the related observation that what customers care about is not infrastructure itself—but the services which are delivered to them using that infrastructure.

I strongly agree with these observations. In my remarks today I want to begin by taking up Gary's point through drawing the contrast between two kinds of infrastructure: land transport and telecommunications.

Next I want to highlight some of the work underway to improve the way we make infrastructure investment decisions in land transport.

Finally I want to respond to the paper's recommendation that Governments should be buyers of infrastructure services—not assets.

Two kinds of infrastructure: land transport and telecommunications

A major theme in this paper is that many infrastructure sectors in Australia have been transformed in the last two decades thanks to the Hilmer competition reforms, corporatisation and privatisation of previously government owned enterprises, and other factors.

In my case, having worked in telecommunications policy extensively over much of the last twenty years, and now holding policy responsibilities in land transport, I have been struck by the differences between the market structures within which telecommunications services are delivered, and those in which road services are delivered.

Telecommunications, twenty five years ago, was dominated by a government owned provider backed by a statutory monopoly. Telstra was sold into private ownership and the market was deregulated, allowing any player to enter, and the results have been impressive.

The story is particularly compelling in the mobile sector– where we have had at various times four, and today three, vertically integrated mobile network operators, competing with extraordinary intensity.

Start with take up. In June 1996 there were 3.6 million mobile services.[1] Today there are well over 30 million mobile services in operation.[2]

Next look at the prices customers pay for their mobile services. In the 15 years from 1997 to 2012, the cost of mobile calls fell by half.[3]

Perhaps the most important benefit competition has delivered is the rate at which the latest technologies are rapidly introduced.

Take the arrival of smartphones: in the two years to 2013 smartphone penetration increased by around 34 per cent. And over that same period data downloads over smart phones increased by 453 per cent.[4]

Let me also give one illustration from fixed line services: the plummeting cost of international calls. In 1989 it cost $3.69 a minute for a call to the UK (expressed in 2014 dollars); today Telstra will charge you 21 cents a minute, or you can get a $15 a month pack which gives you unlimited international calls.[5]

Now the infrastructure investment underpinning all of this has been very large, with the three largest operators collectively spending several billion dollars a year to expand their networks. Of course, what customers care about is the coverage they get and the price they pay for it; they leave it up to the operators to worry about the network.

The charts on page nine of the paper are very interesting: it shows that telecommunications investment has stayed steady at roughly $5 billion a year over the last thirty years, but for much of the period it was largely public sector investment; now it is largely private sector investment. (The growing momentum of the National Broadband Network explains an uptick in public investment recently.)

The chart for transport, by contrast, shows total investment reaching levels as high as $35 billion a year, with public investment considerably and consistently larger than private investment. Yet at the same time, as the paper highlights, the performance of both the road network and urban public transport is under pressure. For example, average morning peak speeds on roads in our five biggest cities declined from 39 kilometres per hour to 35 kilometres per hour over the ten years to 2012–13.

A key issue is that in roads we do not have a well-functioning market. Investment decisions are made through a political process, compounded by the funding split between state and federal governments, rather than being business decisions based on expanding capacity to respond to customer demand.

Improving how we make infrastructure investment decisions

What then is the Turnbull Government doing to improve the way we make infrastructure investment decisions in transport?

Better planning

One priority is improving the way we plan infrastructure investment through the work of Infrastructure Australia. Its brief is to provide expert, evidence-based planning and prioritisation of infrastructure projects, and encourage investment and planning certainty.

Infrastructure Australia has made some solid progress, reflecting in part reforms to IA's structure and operations that the Government put in place in 2014.

We amended IA's enabling legislation to establish it as a truly independent statutory authority, governed by an independent Board. These reforms will help all levels of government focus on delivering nationally significant infrastructure, securing better value-for-money for the taxpayer, and maximising productivity.

In May last year, IA delivered Australia's first top-down audit of nationally significant infrastructure. The audit provides a comprehensive and strategic view of where the pressures on Australia's infrastructure networks will be most acute in 2031.

Soon we will be releasing Infrastructure Australia's 15 year Australian Infrastructure Plan. This will be an important milestone in further developing the prioritisation of infrastructure projects across Australia; and also setting out some key reform directions in infrastructure policy.

Heavy Vehicle Charging

Another area of focus is improving our approach to the way that heavy vehicles are charged for their use of roads in Australia. We are working with state, territory and local governments on heavy vehicle road reform. The ultimate aim is to provide heavy vehicle infrastructure as an economic service, with clear links between the needs of users, the charges they pay, and the services they receive.

This encompasses several efforts. Firstly, Australian governments have developed registers which rate our key freight roads on the basis of their heavy vehicle access, safety, and ride quality characteristics.

This information is published on the Transport Infrastructure Council's website and can be viewed on mapping applications like Google Earth by heavy vehicle operators and other interested parties.

All levels of government have also published their planned investments on key freight roads over the four years to 2018–19.

Together, these asset registers provide the transparent information needed for a market oriented system—and for independent price regulation for heavy vehicle charges by 2017–18, as recently agreed by COAG.

The asset registers and expenditure plans will be updated annually, and we'll also consult industry on how they can be improved even further,

As part of the heavy vehicle reform approach, the Australian and State governments are working on simulated charging trials that will test the logic, fairness and structure of alternative road pricing arrangements.

Road User Pricing More Broadly

The Turnbull Government also expressed our support recently for investigating the pros, cons and potential next steps in introducing cost reflective road pricing for all vehicles. This was part of our response to the Harper Review.

The policy direction recommended by the Harper review is broadly consistent with other policy reviews over the last few years. In 2010 the then Treasurer received the report of a comprehensive study into Australia's future tax system, known as the Henry review. This contained a recommendation that in time fuel and vehicle registration charges should be abolished, on the basis that they were replaced by 'more efficient road user charges.'

In 2014 the Productivity Commission reported on its study into the funding and financing of public infrastructure, and recommended:

Well-designed user charges should be used to the fullest extent that can be economically justified.

The Commission argued that:

Significant institutional and longer-term road pricing arrangements will create more direct links to road users, taking advantage of advances in vehicle technology.

Infrastructure Australia commented on this issue when it released its Infrastructure Audit last year:

Over recent years rates of public and private investment in infrastructure have been higher than the long-term average.

The current level of funding is unsustainable in the face of increasing budget pressure.

Current arrangements represent the most significant opportunity for public policy reform in Australia's infrastructure sectors.

The country needs to consider a broader system of transport pricing for both road and public transport.

There is still a lot of work to do on understanding what impacts road pricing would have on all users of the road system and the broader economy. We will need to be satisfied that there is a reasonable degree of community acceptance and understanding. In turn, this will require a demonstration that the benefits from a broader use of road pricing would exceed the costs.

Any change to the current system of road funding must improve transparency—and deliver clear community benefits. We will continue to work with the states and territories through the COAG process, and with industry and the community, to ensure we get this right.

There is a considerable amount of work in front of the Australian government, and state and territory governments, on this important issue. But it is a reform direction which holds significant promise—and that is why the Turnbull government has clearly indicated the path we intend to pursue on this issue.

In December 2015, COAG agreed to make this road pricing work stream one of its own priorities.

Buyers of infrastructure services—not assets

Finally let me briefly respond to the recommendation in the paper that governments should seek to be buyers of infrastructure services, not assets. This is linked to the observation that politicians like ribbon cutting ceremonies and hence what we like most are big projects. Some of us, very dangerously, even have the phrase ‘major projects’ in our ministerial title.

I think though that this is an important and useful recommendation. It is one reflected in the increasing trend towards governments entering into public private partnerships, under which there is a stream of contractual payments for the ‘availability’ of the infrastructure facility—be it a road, a hospital or a school.

But the paper makes the point that the service government seeks could be specified much more carefully in the contract we enter into. Rather than a road, what we really want is for citizens to be able to travel between two points in a certain time, and to do so reliably—that is, we care not only about the average journey duration, but also the variance or standard deviation around that average.

Table 4 in the paper has some very interesting thoughts on this point. To achieve our objective on journey times, for example, it recommends that we might allow the road operator to allow different classes of service at different price levels.

The other observation on this point is the exciting role that transport technology can play in improving the outcomes we get from physical assets such as roads. I was struck by the example that ramp metering on the M4 could lead to 40 per cent improvements in travel time. Again, if we think in terms of the service we want, rather than a particular asset or project, it opens our eyes to new possibilities.

Certainly these considerations are increasingly important when the Turnbull Government decides whether or not to contribute to road projects around the country. For example we are contributing $200 million towards the widening of the Tullamarine Freeway, which will feature ramp metering as well as an additional lane in each direction.

Conclusion

Let me conclude, then, by congratulating the John Grill Centre on the Better Infrastructure Initiative and on the issue of this very important paper.

Transport infrastructure can sometimes, unfairly, be seen as a fairly stolid and unimaginative sector. In fact, as the paper reminds us, there is ample opportunity to be flexible, nimble, agile and creative. That is the approach the Turnbull Government aims to bring to this sector as to so many others—and this paper is therefore a very important and useful call to arms.

[1] AMTA, ‘Ten Years of GSM in Australia’

[2] ACMA Communications Report 2012–13

[3] ACCC telecommunications report 2012-13

[4] www.crn.com.au/News/109389,telstra-closes-its-cdma-network-today.aspx

[5] Prices Surveillance Authority Report 14, Inquiry in Relation to the Supply of Telecommunications Services, 1987, p 29. This was the ‘day’ rate for a call for a distance of between 50 and 85 km.