Infrastructure
19 September 2019
As parts of Australia engage in a transport infrastructure building boom, unprecedented population growth and changes to technology are making future-proofing assets more important than ever. Yet, changing government and consumer expectations are also making this more challenging.
With this in mind, constructing and managing transport infrastructure assets capable of standing the test of time means contractors, operators, maintainers, investors and financiers must embrace the changing face of transport infrastructure and be prepared to consider their investments through the lens of a service provider rather than as simply infrastructure providers. This, in turn, means they must be prepared to accept changing risk positions and devise new solutions that cater to customer outcomes and technological advances.
The challenges posed by the changing expectations around infrastructure are not insurmountable. In fact, the past provides one of the most relevant examples of how to future proof infrastructure effectively.
The Sydney Harbour Bridge was officially opened in 1932 after six years of construction. Designed as both a rail and road crossing, it was devised and built at a time when the entire state of New South Wales had a population of just 1.3 million and private car ownership was a fraction of what it is today. Despite this, the bridge’s engineers allowed for eight car lanes, two rail lines and two pedestrian or cycle walkways.
This foresight has meant the Sydney Harbour Bridge remains a vital cog in Sydney’s transport network, even though the city is more than four times the size it was when the bridge was completed.
In 2016, it was taking almost twice the number of road journeys as the city’s only other harbour crossing – the Sydney Harbour Tunnel – and remained the only method for Sydney’s trains to cross to the northern suburbs and beyond.
Given the rate of population growth in Australia – particularly in its two largest cities, Sydney and Melbourne – anyone involved with infrastructure must accept that their long-term assets are likely to have to eventually move many more people than when first completed.
Sydney’s population of 5.2 million residents is expected to swell to anything from 8.5 million and 11.2 million by 2066, according to the Australian Bureau of Statistics’ forecasts. Melbourne, which currently has a population of 4.94 million, is growing even faster and should overtake Sydney as the country’s largest city by 2026 if current trends continue.
Without an investment in transport infrastructure in these cities, where most commuters still drive to work, travel times could increase and have a detrimental impact on liveability as well as the cities’ and therefore Australia’s economy.
To this end, Australia’s federal government has pledged to invest $A100 billion in transport infrastructure over the 10 years from 2019/2020 and much of this will go towards improving transport connections in Sydney and Melbourne. The New South Wales and Victorian state governments have also allocated another $A65.71 billion and $A33.65 billion respectively to building transport infrastructure in these two cities in the four years to 2021-22.
Even though building transport infrastructure is an expensive undertaking, governments have the potential to recoup their investment by monetising revenue once the asset is built. This makes transport infrastructure different to many forms of public expenditure.
For example, given the market will not fully value demand risk in a greenfields context, governments can take the ramp-up risk and once the transport infrastructure is in steady state operations, seek to sell the revenue stream from tolls to private sector owners and operators. Case in point, the private sector is already contemplating future monetisation by the Victorian government for Melbourne’s North East Link project, which will be procured as a public private partnership (PPP).
Both state and federal governments are likely to call on PPPs to deliver much of this infrastructure. This remains one of the preferred methods of procurement for governments in Australia – not only because they allow risk transfer to the private sector but also because they are able to deliver a level of budgetary certainty while also tapping into private sector innovation.
Current major projects such as packages within the wider Sydney Metro and elements of Brisbane’s Cross-River Rail are being delivered through this method, while upcoming projects such as the Melbourne-to-Brisbane Inland Rail (Gowrie to Kagaru section) and Melbourne’s North-East Link will go down the same path.
However, winning contracts and making them profitable will come down to more than just price. Increasingly, infrastructure builders will be expected to take the same holistic, consumer-focused approach to infrastructure that governments are adopting.
For instance, under the business requirements for the PPP-designated parts of the Sydney Metro, the system had to be designed for future growth. But the quality of the transport experience also had to be improved and urban development had to be “served and stimulated”. All of this is a long way from simply constructing a rail network cheaply and efficiently and then having the trains run on time.
An artist’s impression of 39 Martin Place from the north (subject to further design development)
For an example of where expectations on infrastructure participants are headed, we only need to look across the Tasman Sea to New Zealand. There, one of the key characteristics of the PPP model is to incentivise the delivery of specified service outcomes and penalise non-performance.
For projects such as Wellington’s Transmission Gully Motorway and Auckland’s Puhoi to Warkworth Motorway, customer-focused expectations are reflected in a series of performance criteria, which include:
The terms of the PPP contract also provide for considerable financial penalties in the event that a safety issue is identified.
In other words, future-proofing a contract means a shift from simply building and maintaining to also considering safety, efficiency and ongoing customer service.
As PPP contracts tend to typically involve operating an asset for between 15 and 30 years, future-proofing also requires taking account of technological and demographic shifts.
This is no easy task: Melbourne and Sydney were between 65 per cent 75 per cent of their current size and Australia’s entire population was almost a third smaller. People are living longer and retiring later in life.
On the technology front, rapid developments in electric vehicles offer some insight into what to expect. Governments around the world have announced ambitions to make sure anywhere from 30 per cent to 100 per cent of private cars sold will be EVs by 2030. Some scenarios forecast as many as 250 million EVs on the road by this time compared to around five million today. There is also likely to be an increase in around-the-clock commercial traffic, as people become accustomed to shopping online for more of their daily needs and deliveries take place off peak and overnight.
Meanwhile, ride sharing apps and autonomous vehicle technology could see private travel begin to compete with public transport on price – potentially leading to more traffic on our roads.
Although, it should be remembered that each of these trends could also be managed by a growing ability to track and maintain data, and then use it provide a better service and plan better outcomes - so long, of course, as any privacy concerns can be addressed.
In short, any designer, builder or operator of transport infrastructure faces many of the same uncertainties around emerging technologies and a growing population that the builders of the Sydney Harbour Bridge faced around 90 years ago. And, while these may be happening more rapidly, we may also have the technology to address them more easily.
Most importantly, success for any participant in the transport infrastructure industry will come down to how well they can assess risk and deliver assets that continue to meet changing customer and government expectations about what should be delivered. That comes down to taking a far-sighted and flexible approach that accounts for uncertainties and puts transport users at the centre of key planning decisions.
South-East Queensland’s largest infrastructure project.
Macquarie Capital is proud to be the gold sponsor of Australia’s leading infrastructure conference.
Learn more
