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www.afr.com | Friday 12 June 2015 $3.80 INCLUDES GST

FINANCIAL REVIEW

National Infrastructure SummitBuilding a new framework for growth | 4-PAGE SPECIAL WRAP

� Price signals needed but Warren Truss cautions against satellite tracking

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James Thomson, Mark Ludlow,Ben Potter and Jenny Wiggins

Continued pS2

NATIONAL INFRASTRUCTURE

SUMMIT J U N E 1 1 - 1 2 | S Y D N E Y

Long road ahead for user paysAustralia must adapt radical new user-pays systems for roads and other trans-port, including technology such asdynamic pricing and even satellitetracking, or face mounting congestionthat will damage productivity and liv-ing standards.

But the proposal for satellite trackinggot a cool reception from deputy PrimeMinister and Infrastructure MinisterWarren Truss, who said it ‘‘wouldn’tpass the pub test’’.

Federal assistant Infrastructure Min-ister Jamie Briggs told The AustralianFinancial Review’s National Infrastruc-ture Summit in Sydney on Thursdaythat Australia was lagging behind therest of the world when it came to costrecovery for road infrastructure.

He said other countries such asSingapore and the United States weretrialling road charging technology,including satellite tracking, to find newways to build much-needed roads.

‘‘Unfortunately in Australia, roadinfrastructure has traditionally laggedbehind other infrastructure sectors in

adopting cost recovery from users andconsumer involvement in investmentdecision making,’’ he said.

‘‘In fact, road transport is one of thelast major areas of our economy thatremains unreconstructed, with institu-tional arrangements around fundingand provision remaining much thesame as they were a generation ago.

‘‘In today’s world, we generallyaccept that you pay for the service youreceive. Road pricing remains theexception.’’

Mr Truss told the summit conges-tion and time of use charges for roadsmade sense to economists and aca-demics, but the public wasn’t ready forit and he said the idea of satellite track-ing would be particularly unpopular.

‘‘I think people still like to be able tovisit their girlfriends without the wholeworld knowing – or their wives know-ing,’’ Mr Truss quipped.

NSW Premier Mike Baird, whosegovernment will introduce tolls on itsWestConnex motorway project, saidpolitical leaders must accept there maybe a backlash. But he said that withoutprivate sector involvement in a projectsuch as WestConnex, only a third of

what the government has promisedcould actually be delivered.

‘‘We have to be a bit more innovativeand be prepared to explain to the pub-lic that if we are going to build this, yes,there will be a toll that comes with it.But if we bring a toll with it then we can

ANDREW THORBURNWhy NAB’s new CEO is in a hurry | Inside today

The challenges areimmense and over the next20 years they are onlygoing to get worse unlesswe take action today.Mike Baird,Premier of New South Wales

We can’t keep building ourway out of congestion. Weneed to change the attitudethat infrastructure is free.Scott Charlton,chief executive Transurban Group

In today’s world, wegenerally accept that youpay for the service youreceive. Road pricingremains the exception.Jamie Briggs,Assistant Minister for Infrastructure andRegional Development

There is no such thing asfree infrastructure andthere are simply no freerides with funding.Lance Hockridge,managing director and chief executive,

PHOTOS: LOUISE KENNERLEY AND CHRIS PEARCE

Expert view

Proper projectselection requiresthe examination ofmore than just theprojects proposed

by governments.The public also needs to knowabout the projects that have notmade the political shortlist.Alan Mitchell S4

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Aurizon’s Hockridgeslams local complacency

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Freight and transport● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

Tim Binsted

Continued S2

Aurizon chief executive LanceHockridge has attacked Australia’s‘‘she’ll be right’’ attitude for nurturingcomplacency and undermining thecompetitiveness of the nation’s freightand transport infrastructure.

Mr Hockridge said that Australia’skey infrastructure freight systems – thesupply chains that take key exports likecoal, iron ore, and grain to market – aresimply not up to scratch due to govern-ment neglect, excessive regulation, andshort-termism.

‘‘Our international competitivenesshas flat-lined in recent years and weneed a relentless process of improve-ment – Australia’s enduring successhas bred complacency in many quar-

ters – the ‘she’ll be right mate’ attitude,’’Mr Hockridge said at The AustralianFinancial Review’s National Infrastruc-ture Summit on Thursday.

‘‘We need to cut through the compla-cency that was nurtured by high com-modity prices and get on with longoverdue reform and investment.’’

Aurizon is the rail haulage group for-merly known as QR National that wasprivatised by the Queensland state gov-ernment in 2010. It is a major hauler forthe resources sector and transportsmore than 250 million tonnes of com-modities every year.

Mr Hockridge said that every one percent improvement in the freight sec-tor’s efficiency yields a $2 billion benefitfor the national economy.

He also cited Infrastructure Austra-lia’s warning that congestion will costAustralia $53 billion a year in lost

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2 3Friday 12 June 2015The Australian Financial Review

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Clockwise from top: Communications Minister Malcolm Turnbull; Infrastructure Australia chairman Mark Birrell; WestConnex DeliveryAuthority chairman Tony Shepherd, Fire Light Consulting’s Nicole Hunter, Newgate Communications’ Brian Tyson, Cato Counsel’s SueCato and Iain Walker from the newDemocracy Foundation; and former Victorian premier Ted Bailleu. PHOTO: LOUISE KENNERLEY

‘You cannotfuture-proofthis project’

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NBN● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

David Ramli

That term‘future proofing’ isjust nonsense andI wish we could justthrow it out.Malcolm Turnbull ,communications minister

Communications Minister MalcolmTurnbull says he’s ‘‘relaxed’’ about Tel-stra pulling out national broadband net-work construction tenders and that it’simpossible to future-proof the NBN.

Speaking at the Australian FinancialReview’s National Infrastructure Summitin Sydney on Thursday, Mr Turnbull saidhe had a better understanding of the pro-ject and its risks compared with his Laborpredecessors.

‘‘I have got a much better handle onthis project than my predecessor on this –a much better handle,’’ he said. ‘‘And thecompany has a much better handle on itso we are looking at it [on] a very clear-eyed, well-informed basis.

‘‘There was a Glee Club culture thereand if you’re in the Glee Club you can’t bea member if you’ve got bad news, so thisis one of the things we had to change.’’

Mr Turnbull said NBN chairman ZiggySwitkowski had a poor view of the com-pany when he first took over the projectafter the Coalition’s 2013 win at the fed-eral election.

‘‘After three weeks I said, ‘Ziggy what isit like – is it like being back at Telstra’?’’Mr Turnbull recalled. ‘‘He said ‘No, it’sworse than that – it’s like being at Tele-

com.’ Then he thought for a minute andsaid ‘No, it’s actually more like the PMG[Postmaster-General’s Department]’ andthat is not an exaggeration.’’

The minister said that while thingswere getting better with the project backon track, the company still had big risksthat could blow out costs and timings.

One of these was the rise of customersusing wireless technologies to get high-speed broadband instead of fixed-lineconnections being built by NBN.

‘‘That term ‘future-proofing’ is justnonsense and I wish we could just throwit out,’’ he said.

‘‘A, you can’t proof yourself against thefuture and B, you shouldn’t want to – youshould embrace the future and embracethe volatility and put yourself and yourfirm, your government in an agile pos-ture that enables you to make that volatil-ity your friend and take advantage of it.’’

But despite saying in 2014 that the NBNcould de-risk by getting Telstra to helpbuild the project, Mr Turnbull told theconference he was relaxed about thenews that Telstra had chosen to walkaway from the construction tender.

‘‘Telstra is very involved with thedesign, what they’re not participating inis the actual construction and delivery,’’he said.

‘‘That’s their call ... but we have a verygood relationship with Telstra and it’s notantagonistic.

‘‘There are other things I’m moreanxious about than that bit.’’

NBN chief executive Bill Morrow toldABC radio on Thursday morning thatprice terms may have been the reason forTelstra’s departure.

‘‘When we looked at the market rates,trying to get the best value for the tax-payers, Telstra felt that was somethingthat they didn’t want to participate inany further and they pulled out,’’ MrMorrow said.

From page S1Aurizon’s Hockridgeslams complacency

We need to take boldand decisive action toreduce the regulatoryburden.Aurizon CEO Lance Hockridge

Australia’s warning that congestion willcost Australia $53 billion a year in lostproductivity by 2031.

The Aurizon boss commended theAbbott government for preserving itsasset recycling initiative, which promotesthe reinvestment of privatisation pro-ceeds into new infrastructure.

He also praised Canberra for its $5 bil-lion building northern Australia loanfacility and for supporting the $1.9 billionautomated freight hub at Moorebank inSydney’s south-west.

But Mr Hockridge said these initiativesare ‘‘patently not enough’’ as he honed inon the need for a national freight strategy,road freight charges, removal of red tapeand more ambitious concrete targets forrail freight.

‘‘It is now 10 years since the Productiv-ity Commission recognised the import-ance of road freight charging reform butit has stayed in the too-hard basket ever

since,’’ he said. ‘‘Governments proclaim apolicy of shifting freight from road to railbut they have failed to bite the bullet on acritical element in the necessary suite ofpolicies to achieve this: the introductionof a heavy vehicle pricing regime.’’

Australia’s two major grain exporters,ASX-listed GrainCorp and Western Aus-tralia’s CBH Group, have persistentlycalled for governments to upgrade dilap-idated rail lines that are pushing grainback onto roads to get to port.

With all major exporters of agricul-tural produce scrambling to capitalise onthe Asian food boom, Mr Hockridgedescribed Australia’s grain supply chainas ‘‘seriously inefficient’’.

He warned that other countries thatare investing in their supply chains willerode Australia’s competitiveness if thecountry does not address its inefficien-cies.

He pointed to Mongolia and Canada inmetallurgical coal, Indonesia and Russiain thermal coal and Brazil’s heavy invest-ment in iron ore.

‘‘We need to take bold and decisiveaction to reduce the regulatory burdenthat imposes unnecessary and stiflesinvestment in road, rail and shipping,’’ hesaid.

‘‘We’ve reached the crazy position, Ibelieve, in some areas where the cost ofregulation is more than the economicbenefit regulators are seeking to deliver,’’he said.

Mr Hockridge said Australia should seta target to have rail carry 30 per cent ofthe freight between Victoria, NSW andQueensland by 2025, up from its current15 per cent.

Long road aheadfor user pays

From page S1

deliver, much, much more. They are thesort of discussions that I think the publicneeds to have, and needs to hear from itspolitical leaders. And it’s one that we areprepared to do.’’

But while Australian state govern-ments have been wary of introducingvariable tolls due to the potential forpolitical backlash, the private sector istrying to encourage governments it is agood idea.

Transurban chief executive ScottCharlton, who runs one of the world’slargest toll road networks, is building theNorthConnex motorway in Sydney forthe Baird government.

Transurban is launching a trial acrossits Melbourne toll road networks of user-charging models.

‘‘The time has come to move beyondthe theory if we want to protect our livingstandards,’’ Mr Charlton said. ‘‘We can’tkeep building our way out of congestion.We need to change the attitude that infra-structure is free.’’

The data from Transurban’s trial willbe shared with the federal Department ofInfrastructure, Mr Briggs said. ‘‘We needto change the way we think about the

provision of road funding. I understandsome may be wary about new types ofroad pricing,’’ Mr Briggs said.

‘‘But it has to be on the table if we areserious about funding the infrastructurewe need for the future.’’

The chairman of Infrastructure Aus-tralia, Mark Birrell, threw his weightbehind the push for user charging in thetransport sector.

‘‘We believe it’s the less-reformed sec-tor and needs to get off that drip as soonas it can in the same way that telecommu-nications and energy have largely discon-nected from the drip of always needing togo to Canberra or state Parliament.’’

Christian Gazaignes, chief executive ofinfrastructure group Bouygues TravauxPublics, said technology would alsochange the way roads and other infra-structure was built, with companiesneeding to look for alternatives to labour,such as automation.

‘‘It will become less and less possible tofind people to do some work, what waspossible in the 19th century will not bepossible in the 21st century.

‘‘The progress of technology will havean unbelievable effect.’’

Future infrastructure was also increas-ingly likely to be built undergroundbecause it was environmentally friendlyand would be located mostly in cities.

But geological conditions would createtechnical challenges, Mr Gazaignes said.WITH WILL GLASGOW

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Robert Harley

John Daley, Lucy Hughes Turnbull and Liverpool mayor Ned Mannoun. PHOTO: LOUISE KENNERLEY

Growing cities need more infrastructurebut it has to be supported by good stra-tegic thinking, good governance, andgood value capture, according to a num-ber of city leaders at The Australian Fin-ancial Review’s National InfrastructureSummit.

‘‘We may not have spent it [the infra-structure dollar] on the right things, atthe right time and at the right price,’’ saida leading analyst of the nation’s cities,Grattan Institute chief executive JohnDaly.

The importance of the task was out-lined by Lucy Hughes Turnbull, a formerlord mayor of Sydney and now chairwo-man of the Committee for Sydney.

‘‘Cities are a driver of the national econ-omy,’’ she said. ‘‘Everybody in Australiahas an interest in Sydney doing well, inMelbourne, Brisbane and Perth doingwell.’’

The deputy mayor of Brisbane, AdrianSchrinner, said Brisbane City Councilwas about to appoint a chief economist toshow just how the city was performing.

Mr Daly noted that the information oncity performance was now easily access-ible from the Australian Bureau of Statis-tics.

Once the city metrics become avail-able, the infrastructure choices becomeeasier to outline and debate.

Perth lord mayor Lisa Scaffidi calledfor a more strategic discussion of infra-structure investment.

‘‘West Australia is not creating a com-pelling enough narrative to explain whywe need help,’’ she said.

The narrative needs to flow up to thenational debate, and down to residents.

Cr Scaffidi pointed to a resident cam-paign to restrict new development in thePerth suburb of Floreat. ‘‘We are scaringpeople without giving them a goodexplanation first,’’ she said.

Ms Hughes Turnbull also noted theneed for strategic planning to avoid‘‘crazy political surprises’’.

And the new chief operating officer ofUrbanGrowth NSW, Julian Frecklington,told the summit in a separate presenta-tion that ‘‘a lot of trust had been lost withdevelopment in Sydney’’.

‘‘We need to rebuild that trust,’’ he said,pointing to the efforts UrbanGrowth ismaking to engage the entire Sydney com-munity in the 30 year Bays Precinctredevelopment to the west of the CBD.

The next question for local govern-ment is how to pay for infrastructure.

Councillor Schrinner pointed to theBritish City Deals scheme under whichregions that exceed their local domesticproduct because of infrastructure invest-ment earn a share of the windfall tax.

The mayor of the City of Liverpool inSydney’s fast growing south-west, NedMannoun, stressed the importance ofvalue capture, which Liverpool isattempting to achieve with a new, near-city project along the Georges River.

He criticised the lack of value capturein the NSW government’s current plansfor the expansion on Sydney’s two largeststadiums.

Mr Daly pointed to the unused valuecapture in land taxes. Local government,he said, was ‘‘sitting on the best tax basein the country’’.

Transfield CEOsays resourceswill shuck assets

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Jenny Wiggins

Transfield CEO Graeme Hunt

The resources sector is likely to embarkon a selling spree of infrastructure assetsas it cuts costs following the slump incommodity prices, Transfield Serviceschief executive Graeme Hunt has said.

‘‘As resources companies scramble todrive costs down to improve margins, theoption to sell infrastructure assetsbecomes very attractive,’’ he said, addingthat companies could use the cash torepair their balance sheets and invest infuture growth.

‘‘Energy and resources companies arecurrently holding pipelines, storage facil-ities, power plants, housing, villages andwater treatment plants on their balancesheets – some might argue these are non-core,’’ he said.

‘‘Many of these assets can deliver thesame benefit to operators if they areowned by somebody else.’’

Mr Hunt said third-party owners andoperators could increase the productivityof infrastructure assets as energy andresources companies moved out of the‘‘expansionary build phase’’ and enteredthe ‘‘sweat phase’’ of their life cycle.

‘‘The time for building assets is over fornow, and the time to optimise output andefficiency is here.’’

‘‘In an environment where the price ofiron ore is hovering around $US60 pertonne, iron ore producers are heavilyincentivised to drive cost out consideringthe massive falls from the days of $US100plus per tonne.’’

Transfield expects to see persistentlylow inflation, lower asset yields, andlower commodity prices in the near term,Mr Hunt said.

But he said the government still had aplenty of ‘‘fire power’’ in the form ofexpansionary fiscal policies.

‘‘It is a very reasonable proposition tosay that investing in the right infrastruc-ture could provide an opportunity totransition our economy away from anoverwhelming resources focus and thevolatility of its boom and bust cycle.

‘‘Roads, rail, ports, airports, utility net-works and social infrastructure are notjust the backbone of the nation, they arealso the growth engine of our future.

‘‘World Bank data shows that every10 per cent increase in infrastructurefunding increases output by approxim-ately 1 per cent in the long term.’’

However, Australia needed to be waryof developing a reputation for politicalrisk after the new Victorian Labor gov-ernment scrapped Melbourne’s EastWest Link motorway project, he said.

Mr Hunt also argued that consolida-tion was not always of benefit to compan-ies. Transfield last year rejected a $1billion takeover bid from Spanish infra-structure group Ferrovial.

‘‘Scale is important but is not alwaysthe critical element of value creation, andwe know what we believe we’re good at,and that’s where we’re going to focus.’’

The smart way to avoidcongestion nightmare

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Ben Potter

Smarter technology, peak tolls,carpooling and staggered work days willbe needed to avert a nightmare scenarioof Mexico City-style congestion in Sydneyand other capitals, says Transurban chiefexecutive Scott Charlton.

Mr Charlton told The AustralianFinancial Review’s NationalInfrastructure Summit that Australianshad to accept sweeping changes totransport pricing, including more peakuser charges, to make the most ofstrained transport routes and limitedfunding. ‘‘User-pays pricing models havebeen pursued extensively in mostinfrastructure and utility markets, whyshould roads and transport be anydifferent?’’ he asked.

Mr Charlton said transport routeswere under strain because more thanhalf the new housing for major cities’surging populations was being built onthe outskirts, while more than half ofnew jobs were being created within10 kilometres of the centralbusiness districts.

He said building new infrastructure

was only part of the answer, and thecommunity would have to use roads andtransport systems much more efficiently– spurred by charges that reflect costs –for major capitals to remain liveable.

‘‘We simply cannot keep building ourway out of congestion, and we have tochange the attitudes that existinginfrastructure is free,’’ he said. ‘‘If we canmake better use of the existinginfrastructure, we can not only spreadthe load but delay the need and size offuture investment.’’

He painted a dystopian picture offuture transport in major cities withoutreform, saying Sydney and Melbournealready ranked alongside London, LosAngeles and New York – cities three timeslarger – for gridlock. ‘‘If nothing changes,by 2035 Sydneysiders will facecongestion levels on par with Mexico Cityand will waste 110 hours a year in traffic.’’

But Mr Charlton said technology underdevelopment – integrated roads andpublic transport, driverless cars withsensors and processors that can ‘‘read’’road conditions – would help us makemore efficient use of transport systems.

‘‘In 20 years we will have technologywith the potential to fundamentallychange the way we move.’’

Transport sector told tofind alternative funding

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Roads and railways● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

Jenny Wiggins

Roads and railways need to ‘‘get off thedrip’’ of the public purse and find altern-ative sources of funding to improve Aus-tralia’s transport infrastructure,Infrastructure Australia chairman MarkBirrell says.

‘‘There are competing demands forpublic money,’’ Mr Birrell said. ‘‘Thetransport sector in particular relies onthat public money.

‘‘We believe it’s the less-reformed sec-tor and needs to get off that drip as soonas it can, in the same way that telecom-munications and energy have largely dis-connected from the drip of alwaysneeding to go to Canberra or alwaysneeded to go to state Parliament.’’

Australia could afford to spend tax-payer money building rail systemsaround the country 100 years agobecause it was not spending as muchmoney as it did today on welfare, healthand other important social services, MrBirrell said.

The country needed to face the realitythat there was less public money avail-able for infrastructure at a time when

demand for infrastructure services wasrising, he added.

Infrastructure Australia planned to setits own path in assessing projects thatwere best for the nation, he said.

‘‘All projects that receive more than$100 million from the Commonwealthwill be assessed by Infrastructure Austra-lia. We are hoping to get to a positionwhere the way we assess projects isidentical and shared by all the states andterritories,’’ Mr Birrell said.

Public discussion on infrastructureprojects in Australia was too often dom-inated by debates on single projectsinstead of focusing on strategy or long-term policy, he said.

‘‘As a nation we must focus on the longgame.’’

Australia’s ranking on infrastructurehas slipped to 18 from 5 in 2009, theWorld Competitiveness Yearbook pub-lished by Swiss business school IMDshowed.

Australia, which has the world’s 12th-largest economy, should be among thetop 10 nations globally for infrastructure,Mr Birrell said.

‘‘If we are going to protect our futurequality of life, Australia will certainlyneed to lift its game,’’ he said.

‘Peak car’ makes building freeways risky● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

Motorways● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

Geoff Winestock

Aworldwidetrendawayfromdrivingcarsshouldmakeinvestorsandgovernmentsmorecautiousaboutbuildingbignewmotorways,saysJohnDaley,chiefexecutiveoftheGrattanInstitute.

MrDaleytoldTheAustralianFinancialReview’sNationalInfrastructureSummitthatfallingcarusewasoneofthemostimportanttrendsininfrastructureanditshouldbediscussedmorethanitwasbydecisionmakers.

‘‘Weshouldbeverycarefulabouttheassumptionthatroadusageisgoingtokeeprisinginthefutureatthesamerateasithasinthepast,’’MrDaleysaid.

ThemostrecentBureauofTransportInfrastructureandRegionalEconomicsdatasuggestedpassengerkilometrestravelledwasfallingorstable,hesaid.

Thiswasinlinewithglobaltrends,whichsuggestedasignificantchangewashappeninginalldevelopedcountries.

Hesaidthephenomenonof‘‘peakcar’’onlyaddedtotherisksofbuildingfreeways.

HesaidthiswashighlightedbytherevelationthatthebusinesscasefortheEastWestfreewayinMelbourne‘‘fellover’’becauseitshowedacost-benefitratioofonly0.43.

HesaidthismeantthatifVictoriahadproceededwiththefreewaytaxpayerswouldhavelost60forevery$1invested.Hesaidthefinancialcollapseofseveralprivatelyfundedtollroadsbasedonoveroptimistictrafficforecastsalsoshowedbenefitswereoftenexaggerated.

MrDaley’scommentscontrastedwithseveralotherspeakersattheconferencewhoenthusiasticallyendorsedfreewayconstructionsuchasthe$14billionWestConnexfreewayinSydney.

National Infrastructure Summit National Infrastructure SummitA

2 Friday 12The Australian

www.

Clockwise from top: Communications Minister Malcolm Turnbull; Infrastructure Australia chairman Mark Birrell; WestConnex DeliveryAuthority chairman Tony Shepherd, Fire Light Consulting’s Nicole Hunter, Newgate Communications’ Brian Tyson, Cato Counsel’s SueCato and Iain Walker from the newDemocracy Foundation; and former Victorian premier Ted Bailleu. PHOTO: LOUISE KENNERLEY

‘You cannotfuture-proofthis project’

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NBN● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

David Ramli

That term‘future proofing’ isjust nonsense andI wish we could justthrow it out.Malcolm Turnbull ,communications minister

Communications Minister MalcolmTurnbull says he’s ‘‘relaxed’’ about Tel-stra pulling out national broadband net-work construction tenders and that it’simpossible to future-proof the NBN.

Speaking at the Australian FinancialReview’s National Infrastructure Summitin Sydney on Thursday, Mr Turnbull saidhe had a better understanding of the pro-ject and its risks compared with his Laborpredecessors.

‘‘I have got a much better handle onthis project than my predecessor on this –a much better handle,’’ he said. ‘‘And thecompany has a much better handle on itso we are looking at it [on] a very clear-eyed, well-informed basis.

‘‘There was a Glee Club culture thereand if you’re in the Glee Club you can’t bea member if you’ve got bad news, so thisis one of the things we had to change.’’

Mr Turnbull said NBN chairman ZiggySwitkowski had a poor view of the com-pany when he first took over the projectafter the Coalition’s 2013 win at the fed-eral election.

‘‘After three weeks I said, ‘Ziggy what isit like – is it like being back at Telstra’?’’Mr Turnbull recalled. ‘‘He said ‘No, it’sworse than that – it’s like being at Tele-

com.’ Then he thought for a minute andsaid ‘No, it’s actually more like the PMG[Postmaster-General’s Department]’ andthat is not an exaggeration.’’

The minister said that while thingswere getting better with the project backon track, the company still had big risksthat could blow out costs and timings.

One of these was the rise of customersusing wireless technologies to get high-speed broadband instead of fixed-lineconnections being built by NBN.

‘‘That term ‘future-proofing’ is justnonsense and I wish we could just throwit out,’’ he said.

‘‘A, you can’t proof yourself against thefuture and B, you shouldn’t want to – youshould embrace the future and embracethe volatility and put yourself and yourfirm, your government in an agile pos-ture that enables you to make that volatil-ity your friend and take advantage of it.’’

But despite saying in 2014 that the NBNcould de-risk by getting Telstra to helpbuild the project, Mr Turnbull told theconference he was relaxed about thenews that Telstra had chosen to walkaway from the construction tender.

‘‘Telstra is very involved with thedesign, what they’re not participating inis the actual construction and delivery,’’he said.

‘‘That’s their call ... but we have a verygood relationship with Telstra and it’s notantagonistic.

‘‘There are other things I’m moreanxious about than that bit.’’

NBN chief executive Bill Morrow toldABC radio on Thursday morning thatprice terms may have been the reason forTelstra’s departure.

‘‘When we looked at the market rates,trying to get the best value for the tax-payers, Telstra felt that was somethingthat they didn’t want to participate inany further and they pulled out,’’ MrMorrow said.

From page S1Aurizon’s Hockridgeslams complacency

We need to take boldand decisive action toreduce the regulatoryburden.Aurizon CEO Lance Hockridge

Australia’s warning that congestion willcost Australia $53 billion a year in lostproductivity by 2031.

The Aurizon boss commended theAbbott government for preserving itsasset recycling initiative, which promotesthe reinvestment of privatisation pro-ceeds into new infrastructure.

He also praised Canberra for its $5 bil-lion building northern Australia loanfacility and for supporting the $1.9 billionautomated freight hub at Moorebank inSydney’s south-west.

But Mr Hockridge said these initiativesare ‘‘patently not enough’’ as he honed inon the need for a national freight strategy,road freight charges, removal of red tapeand more ambitious concrete targets forrail freight.

‘‘It is now 10 years since the Productiv-ity Commission recognised the import-ance of road freight charging reform butit has stayed in the too-hard basket ever

since,’’ he said. ‘‘Governments proclaim apolicy of shifting freight from road to railbut they have failed to bite the bullet on acritical element in the necessary suite ofpolicies to achieve this: the introductionof a heavy vehicle pricing regime.’’

Australia’s two major grain exporters,ASX-listed GrainCorp and Western Aus-tralia’s CBH Group, have persistentlycalled for governments to upgrade dilap-idated rail lines that are pushing grainback onto roads to get to port.

With all major exporters of agricul-tural produce scrambling to capitalise onthe Asian food boom, Mr Hockridgedescribed Australia’s grain supply chainas ‘‘seriously inefficient’’.

He warned that other countries thatare investing in their supply chains willerode Australia’s competitiveness if thecountry does not address its inefficien-cies.

He pointed to Mongolia and Canada inmetallurgical coal, Indonesia and Russiain thermal coal and Brazil’s heavy invest-ment in iron ore.

‘‘We need to take bold and decisiveaction to reduce the regulatory burdenthat imposes unnecessary and stiflesinvestment in road, rail and shipping,’’ hesaid.

‘‘We’ve reached the crazy position, Ibelieve, in some areas where the cost ofregulation is more than the economicbenefit regulators are seeking to deliver,’’he said.

Mr Hockridge said Australia should seta target to have rail carry 30 per cent ofthe freight between Victoria, NSW andQueensland by 2025, up from its current15 per cent.

Long road aheadfor user pays

From page S1

deliver, much, much more. They are thesort of discussions that I think the publicneeds to have, and needs to hear from itspolitical leaders. And it’s one that we areprepared to do.’’

But while Australian state govern-ments have been wary of introducingvariable tolls due to the potential forpolitical backlash, the private sector istrying to encourage governments it is agood idea.

Transurban chief executive ScottCharlton, who runs one of the world’slargest toll road networks, is building theNorthConnex motorway in Sydney forthe Baird government.

Transurban is launching a trial acrossits Melbourne toll road networks of user-charging models.

‘‘The time has come to move beyondthe theory if we want to protect our livingstandards,’’ Mr Charlton said. ‘‘We can’tkeep building our way out of congestion.We need to change the attitude that infra-structure is free.’’

The data from Transurban’s trial willbe shared with the federal Department ofInfrastructure, Mr Briggs said. ‘‘We needto change the way we think about the

provision of road funding. I understandsome may be wary about new types ofroad pricing,’’ Mr Briggs said.

‘‘But it has to be on the table if we areserious about funding the infrastructurewe need for the future.’’

The chairman of Infrastructure Aus-tralia, Mark Birrell, threw his weightbehind the push for user charging in thetransport sector.

‘‘We believe it’s the less-reformed sec-tor and needs to get off that drip as soonas it can in the same way that telecommu-nications and energy have largely discon-nected from the drip of always needing togo to Canberra or state Parliament.’’

Christian Gazaignes, chief executive ofinfrastructure group Bouygues TravauxPublics, said technology would alsochange the way roads and other infra-structure was built, with companiesneeding to look for alternatives to labour,such as automation.

‘‘It will become less and less possible tofind people to do some work, what waspossible in the 19th century will not bepossible in the 21st century.

‘‘The progress of technology will havean unbelievable effect.’’

Future infrastructure was also increas-ingly likely to be built undergroundbecause it was environmentally friendlyand would be located mostly in cities.

But geological conditions would createtechnical challenges, Mr Gazaignes said.WITH WILL GLASGOW

National Infrastructure Summit

AFRGA1 S004

Pick therightprojects

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Comment

Alan Mitchell

Infrastructure Australia’s chairmanMark Birrell and Reserve Bankgovernor Glenn Stevens are on thesame page.

According to Stevens, the economywould benefit from the steadypipeline of well chosen infrastructureprojects.

This would help supportconstruction activity and increaseinvestor confidence in the growingproductive capacity of the economy inthe longer run.

The impediments to this, Stevenssays, are not in the funding, sinceinterest rates a very low and it wouldbe ‘‘perfectly sensible for some publicdebt to be used to fund infrastructurethat will earn a return’’.

Rather they are ‘‘in our decision-making processes and, it seems, in ourinability to find political agreement onhow to proceed’’.

We need to overhaul thegovernance of infrastructureinvestment, which has long been usedby the major political parties for pork-barrelling.

Infrastructure Australia’s nationalaudit is an important step in thedirection of reform.

As Birrell demonstrated at the TheAustralian Financial Review’s NationalInfrastructure Summit in Sydney,Australia needs to get itsinfrastructure investment right.

We cannot afford to leave theselection of high-quality projects topolitical chance.

But even with the new, strongerrole of Infrastructure Australia, thereare still important gaps in theinfrastructure selection process.

For example, proper projectselection requires the examination ofmore than just the projects proposedby governments.

The public also needs to knowabout the projects that have not madethe political shortlist.

Infrastructure Australia’s analysisof any individual project should tell uswhether its benefits exceed its costsbut it won’t tell us whether the projectdeserves to be ranked ahead of thehundreds of less politically attractiveprojects sitting in departmental filingcabinets.

If there was no limit to the moneyavailable, every project with benefitsin excess of its costs would be built.But, in the real world, priority shouldbe given to the projects with thehighest benefit-cost ratios.

To judge the projects thatgovernments are putting forward, thepublic needs to know more about theprojects that ministers have chosen toignore.

The answer to this problem is forgovernments to create acomprehensive menu of feasibleprojects.

That will take time and money,although some departments willalready be doing it as a matter ofcourse. It is a worthwhile investment.Some of those ignored projects willhave benefits equal to many timestheir costs. In a few cases theirgreatest drawback will be that theyare in the wrong electorate.

However, in many more cases itwill simply be that they areunglamorous and of little interest tothe media and, therefore, thepoliticians.

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WHAT THEY SAID● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

Our infrastructure spendingis not just invested with theintention of increasingproductivity, but simplyplaying catch up withpopulation growth.Lucy Turnbull, chair, committee for Sydney

I think West Australia is notdoing enough to convincethose on that east coast thatwe need help. We produce 30or 40 per cent of the grossnational income. What’s goodfor one is good for all.Lisa Scaffidi, lord mayor of Perth

Ten years ago an €800million project wasconsidered a very seriousproject and today we aremanaging 10 projects beyond€1 billion.Christian Gazaignes,CEO of Bouygues Travaux Publics

An old transport ministers’joke is ’Reforming roadtransport finding is a greatidea and I can’t wait to see mysuccessor implement it.Brendan Lyon,CEO of Infrastructure Partnerships Australia

A lot of projects are deliveredfor political reasons and arenot necessarily the ones thatgive you the best bang foryour buck.Adrian Schrinner,Deputy mayor, City of Brisbane

We do have a sort of whingingmentality in Australia whichwe’ve developed over 25years of growth.Tony Shepherd,chairman, WestConnex Delivery Authority

PHOTO: LOUISE KENNERLEY AND CHRIS PEARCE

AGL CEO sees important role for power grid● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

Electricity● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

Angela Macdonald-Smith

The more end-usersconnected, . . . thelower the price, thegreater the value.Andy Vesey, CEO, AGL Energy

AGL Energy’s new chief executive,Andy Vesey, has insisted the electricitygrid has a hugely important future asthe backbone of a powerful and high-tech interconnected supply systemserving customers with efficient andreliable power.

In contrast to some predictions thatthe power network is doomed toobsolescence as households discon-nected and generated their own electri-city, Mr Vesey told The AustralianFinancial Review’s National Infra-structure Summit the grid wouldbecome increasingly connected, provi-ding better efficiency and greater value.

‘‘The networks aren’t archaic, theyare not a legacy of some old system,they are vitally, vitally important,’’ MrVesey said in his first public speechsince taking over as AGL chief exec-utive in February.

‘‘The quality of those systems isvery important and the investmentsthat are going to be made in the nearto mid-term will determine whatkind of flexibility and capability

exists’’ for consumers in the future.NRG Energy chief executive David

Crane is one high-profile utility bosswho has predicted that centralisedpower grids will become increasinglyirrelevant as more and more cus-tomers generate their own power ontheir rooftops.

But Mr Vesey disagreed, saying themost efficient way of supplying electri-city and building infrastructure was‘‘by connecting more and more and

more users not less and less and less.‘‘The more people, the more end-

users that are connected, the more effi-cient the system, the lower the price,the greater the value,’’ he said.

US-born Mr Vesey said that the morethan $25 billion of investments due tobe made in networks in Australia’snational electricity market in the nextfive years would be important to set the

path toward that intelligent, intercon-nected system and said ‘‘some level ofhigher strategy’’ needed to be discussedto point the way.

‘‘There has to be a vision, there has tobe a view,’’ he said. ‘‘Public policy has tobe argued and debated to come to theright outcomes.’’

Mr Vesey, who joined AGL from USpower giant AES Corporation, said thatby 2050 the network would be ‘‘bi-directional’’, because by then every-body would be buying and sellingenergy, and would have to be ‘‘abso-lutely reliable’’ because of the hugenumber of systems that would dependon it.

He predicted that Australia would beat the forefront of innovation in electri-city supply because of the ultra-competitiveness of retail markets here,with some 26 retailers competing forcustomers in Victoria, for example.

‘‘Innovations in the electricity mar-ket will occur in Australia first becausethese are the most competitive marketsin the world,’’ he said.

‘‘How long can retailers compete onprice? There has to be innovation.’’

Mr Vesey also argued that servicesprovided on the network infrastruc-ture, such as metering, should be con-

testable, rather than awarded like aconcession to an operator that wouldface no competition. Network owners,however, would argue the opposite, heconceded.

‘‘That’s a good argument and it has tobe sorted,’’ he said.

‘‘It’s very important that the enablinginfrastructure allows that innovationto happen in almost an unfetteredway,’’ he said, adding the caveat thathardship customers needed to be pro-tected from any disadvantage.

‘‘In my view the worst thing thatcould happen is that there would be adrive to reregulate these competitivemarkets’’ to protect disadvantaged cus-tomers, he said. That would squashinnovation and hinder development.

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AFRFriday 12 June 2015The Australian Financial Review | www.afr.com

S4 National Infrastructure Summit