Infrastructure Productivity

Garry BowditchChief Executive

Presentation to Warren Centre for Advanced Engineering, Sydney June 2015

4

What is happening to infrastructure investment?

Public Corporations (utilities) investment trends have reflected policy and governance reforms and asset renewal cycles

5

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$, real per capita

Source: ABS National Accounts, Table 54.

Real Public Corporations Investment per capita (1984-2014)

Public ownership of Utilities

Corporatisation/Privatisation

Major asset renewals (electricity/water)

Mining Boom/GFC response

Fiscal constraints/consolidation

Transport & Utilities investment is growing strongly

6

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000$, real per capita Net Capital Stock per capita, EGWWS and Transport

EGWWS K per capita ($,real)

Transport K per capita ($,real)

Linear (EGWWS K per capita ($,real))

Linear (Transport K per capita ($,real))

- Investment in Electricity, Gas, Water and Transport remains above trend, reflecting cyclical catch-up (hence strongly growing net capital stock).

- But questions remain about the wisdom of some investments as productivity has fallen in both industries.

High input growth not matched by growth in output

• Productivity has declined since 2003-04

– Ramp-up in mining boom investment without corresponding increase in output, but benefits from production boom now

– Very poor performance in EGWWS, mothballed desal plants, over-spec NEM.

7

Source: AER November 2014, Annual Benchmarking Electricity

Productivity Comparisons for Electricity Distribution

But it is clear that major pressures remain

9

Infrastructure costs & efficiency considerations?

• Does history repeat?

TransportEnergy

Planning Assumptions

Asset Renewal Cycle

12

Overall result - rapidly rising infrastructure costs

13

Mega-Project or just Mega-Expensive-Project?Gateway Bridge – 1 v 2

14

Cost Inefficiencies

driving up investment risk

• Environmental Management

– EPBC Act, Fisheries Act, Environmental Protection Act, Vegetation Management Act, Water Act

• Planning

– Sustainable Planning Act

• Technical standards

– Many instances of more onerous standards; questionable whether benefits exceeds costs

• Health and Safety standards

$4 -$5 billion pa is

lost to inefficiencies

& wastage

What can be done to improve efficiencies?

16

Infrastructure ≠ Innovation

31 31 3028

25 2522 22

19 18

1412 11 11 11 11 10

2024

30

19 1814

1715 16

20 1815

25

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16 16

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Source: ABS, Summary of IT Use and Innovation in Australian Business, 2012-13

Better priority setting

Better incentives

Better governance

• Less focus on major ribbon cutting

• More use of well-targeted ‘pinch point’ interventions

• Improved life cycle management

• Ensure assets have ‘owners’ whose returns depend on life-cycle performance

• Improve contracts to better align risk, effort and reward

• Use prices or shadow prices to signal costs

• Benchmark service performance, reward for outcomes

• Clarify roles of Commonwealth/ State bodies

• Better align analysis methodologies

• Greater transparency at all stages

• Improve public/private balance

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Garry Bowditch

CEO

SMART Infrastructure Facility

+612 4298 1241

Garry_bowditch@uow.edu.au