A recent draft report by the Productivity Commission has found an abundance of flaws, mythologies and forgone opportunities in infrastructure financing, funding and procurement. The Commission draft outlines a proposed process for improving infrastructure investment across all levels of government; and as a consequence attracting increased private investment.
Peter Harris, the Presiding Commissioner and Commission Chairman said ‘Governments have it in their power to attract higher levels of private infrastructure investment, and to improve their own capacity to fund infrastructure, even in the presence of apparent borrowing constraints. They can do this through the judicious use of pricing mechanisms and by collectively establishing stronger transparent processes for project identification, selection, design and implementation. A visible project pipeline should naturally emerge from adoption of these reforms.’
The Commission also proposes to examine further a number of potential improvements to financing mechanisms for infrastructure, including options proposed to address specific concerns related to the role of superannuation funds in greenfields projects.
The report cautions against imagining ‘magic pudding’ solutions will arise from private sector financing. Ultimately taxpayers or users must pay for infrastructure. Many projects will still need public funding and quite often this will involve public financing. Nevertheless, the report says that, if executed well and for the right projects, private sector involvement can deliver vital new efficiency gains.
The report specifically devotes thought to road user pricing, both the scope for institutional reform and the opportunities for future pricing of new and upgraded roads investment. Over time, these reforms have the capacity to resolve this last large vestige of unpriced public infrastructure investment. A longer term transition to direct road pricing generally, with a start now on pilot technology studies to test the idea, should be the preferred objective for governments.
On infrastructure costs, the draft report finds these could be significantly reduced through the adoption of better practice procurement processes by governments. ‘Australia is not a cheap place in which to build infrastructure, but the sources of the cost pressures that have created this situation are numerous and no single reform is likely to alter them. Action on a number of fronts is necessary,’ Peter Harris said.
The report finds poor industrial relations arrangements in some major projects, with adverse effects on costs and productivity, but less persuasive evidence that the effects were relevant across the whole construction sector. The Commission says that governments should use greater penalties for unlawful industrial disputes and use its buying power to leverage better industrial relations practices. Both firms and unions should feel the clearest commitment of government buyers to better industrial practice.
However, the report says that perceptions of a crisis in productivity or undue wage breakouts across all infrastructure construction activities are misplaced. Cost pressures have come off to some extent, as the construction mining boom has abated. The report finds that pursuit of these reforms could readily save $1 billion dollars a year, as a conservative target.
The Commission is seeking written feedback on the draft report by 4 April, and will hold public hearings in early April. A final report will be provided to the Australian Government in late May 2014.
For more details see http://www.pc.gov.au/projects/inquiry/infrastructure/draft