LUKE FRASER. Infrastructure – a partner in our labours.

The Senate must be permitted to help avoid major infrastructure debacles. 

Many recent posts in Pearls and Irritations have focussed on democratic renewal. Some have decried a lack of trust and competence in our political class. At the same time our retiring Reserve Bank governor advises government should spend more on productive infrastructure.

Given that the Australian Senate looks harder and harder to deal with for any government and public faith in major infrastructure projects is at a low ebb, how do we proceed?

Bringing major infrastructure projects back under the aegis of the Senate is the best course of action for the government. It is also a means of ensuring Commonwealth infrastructure spending can be considered Constitutional.

Would $AUD50 billion in avoidable major project disasters be enough to grab the new Senate’s attention? A wander through just four current and recent major infrastructure projects – combined value circa $AUD50 billion – should confirm the need to rediscover due parliamentary process:

  • Westconnex: is a circa $17 billion dollar tollway project which presented a threadbare cost-benefit ratio even when it only cost $10 billion. Even more concerning is the likely foundation flaw in its logic: instead of building a motorway to distribute traffic around a city (in line with accepted economic wisdom that motorways are distributive infrastructure, not mass transit systems),[i] Westconnex appears aimed squarely at the heart of Sydney’s centre from the west. Presumably it will suck up all of western Sydney’s traffic and send it to a grand gridlock in the city centre. Either that, or as for almost every other major toll road in Australia[ii], far less drivers will in fact use it than the commercial proponents expect. Both of these unfortunate outcomes deserved scrutiny in a properly constituted committee of elected officials before several billion dollars of our money changed hands.
  • North-West Metro: staying in Sydney, a new light rail line to Sydney’s north-west will cost perhaps over $20 billion to build, but due to design choices it will not be capable of interacting fully with the existing CityRail network: the dimensions of its trains, tunnels and platforms are different from CityRail equivalents. This may constrain the operation and future expansion capacity of CityRail overall. If so, North-West Metro – by eschewing interoperability – may risk the mass transit efficiency of Australia’s largest city. Again, it would have been useful for a proper committee of elected officials to ask the designers to justify their proposed course of action and its implications before proceeding, because once done, this cannot be undone.
  • WA Freightlink: in Western Australia, over $2 billion will be spent on Perth highway upgrades, purportedly to benefit the trucking task to and from the port of Fremantle. Yet the City of Fremantle itself has said it doesn’t want Freightlink; the Fremantle port authority is on record suggesting it might outgrow its current site within a decade (rendering the investment obsolete); the local trucking industry have been told they will have to pay for the project in user charges, but nobody will tell them how much. The project upgrades don’t actually stretch all the way into the port anyway.
  • East-West Link: was cancelled in 2014 at the cost of a winning consortium payout of over a billion dollars. The poor business case was withheld from Infrastructure Australia by the Victorian government. Almost every step of this project and governments on both sides have attracted the criticism of government auditors. The Commonwealth government continued to provision for the tollway as a Commonwealth priority even after it had been cancelled. Subsequently, the Commonwealth Auditor-General excoriated the Commonwealth government for writing a cheque for the project despite the misgivings of its own transport department[iii].
  • In three of these cases, no substantial Senate inquiries were ever held, despite the fact that tens of billions in Commonwealth funds were flowing to the projects. In the case of WA Freightlink, the Senate’s Rural, Regional Affairs and Transport Committee did produce a very solid inquiry and report, which recommended that the money Canberra had committed to the project be withdrawn: the report came after the Commonwealth government of the day had already decided to go ahead with the project.

What is wrong with the system? There appear to be three main problems:

  1. Infrastructure Australia is the purported independent adviser in these projects, yet it makes its recommendations to government, not the parliament.
  1. Since the High Court rulings in the Williams and Williams 2 school chaplaincy grants program cases (discussed expertly by John Austen in a recent post[iv]), there is doubt over the Constitutional legitimacy of Commonwealth government grants which are delivered without the scrutiny of the parliament. Billions in Canberra road grants appear to fall outside the spirit of the law. Whether they also fall outside the letter of the law is something that is now open to test.
  1. There is a deep advisory deficit in the bureaucracies.

In this environment, each newly-minted government minister can be forgiven for assuming that when it comes to major infrastructure projects, they alone make all the decisions. Woe betide anybody who gets in the way of progress! All this achieves is to politicise these projects. It also rattles market investor confidence and ensures a jaded public.

The four projects mentioned above show us the enormous costs of this approach.

It has not always been thus. Australia’s colonies adopted the British model where parliament can scrutinise major projects – notably rail – through enabling project legislation. The United States has similar provisions to ensure that project proponents are asked all the hard questions. The system works because of the conditions under which evidence is given and because elected politicians are far more likely than technocrats to ask the big, obvious and essential questions before money is committed and plans finalised. This does not, of course, protect against the Senate picking its own meritless favourites, but such behaviour can be corrected at the ballot box if needs be.

The mechanisms for Australia to get back to this approach are still there, but they are badly run down: the Commonwealth Joint Parliamentary Standing Committee on Public Works was founded over a century ago with parliamentary scrutiny of major projects as its polestar. These days this committee is reduced mostly to holding inquiries into the cost of Commonwealth office fitouts costing in the millions rather than examining the tens of billions in Commonwealth funded major infrastructure projects on foot at any given time. Since the end of 2013, the Senate’s Standing Committee on Rural and Regional Affairs and Transport has managed just one inquiry into major infrastructure, being WA Freightlink. It did a thorough job with this project – finding that it was a gross waste of money and along the way hearing in detail of cheaper, far more productive solutions.

Sunlight is the best disinfectant. Two simple reforms would give everyone – including market investors – more faith in our infrastructure programs. These two steps would restore some due process and Constitutional legitimacy to Commonwealth infrastructure spending:

  1. Infrastructure Australia must table its infrastructure project priorities and business case assessments to the Senate for scrutiny, not just to the government for a rubber stamp. 
  1. As a starting threshold, all economic infrastructure projects over $AUD1 billion must be subject to stand-alone legislation, which will face due parliamentary scrutiny.

Let the Australian Senate become a hard-working partner in the government’s labours on infrastructure. In so doing let’s remove the rank amateurism and partisan politics that is destroying our global reputation for producing major infrastructure projects.

Luke Fraser is the founder and principal of a transport policy and investment advisory. In 2012 he was appointed to the board of the Prime Minister and Premiers Road Reform Project. Prior to this he was a national freight industry chief executive. Most recently he oversaw a new approach to heavy vehicle pricing and fuel rebates for the South Australian transport minister – a reform project which is partnered by the Commonwealth government. The views expressed here are his own.

[i] http://infrastructureaustralia.gov.au/projects/files/NSW-WestConnex.pdf

[ii] See just how outrageously most Australian toll roads have underperformed against the traffic forecasts of their commercial proponents in Dr R. Bain Australian Toll Roads: Big Trouble Down Under University of Leeds (2014) http://www.robbain.com/Toll%20Roads.pdf

[iii] http://www.abc.net.au/news/2015-12-14/auditor-general-slams-federal-government-over-east-west-link/7026698

[iv] http://johnmenadue.com/blog/?p=7286

 

Posted by Luke Fraser