Managing WA Capital Works Programs

Department of Treasury and FinanceGovernment of Western Australia

Managing Western Managing Western Australia’s Capital Works Australia’s Capital Works

ProgramProgram

Michael CourtAsset Planning and ManagementDepartment of Treasury and Finance


OverviewOverview Demand for Infrastructure

Composition of Capital Works Program

Policy and Planning Processes

Challenges

The Need for CEIID


Our Booming EconomyOur Booming Economy Gross State Product grew 4.9% in 2005-06

Business investment up 23.3% in 2006-07

Unemployment rate of 3.1%

Investment projects worth $143.8 billion committed or in prospect

Rated AAA by S&P and Moody’s


Export Focused Economy 2006-Export Focused Economy 2006-0707

A $60.5 billion total merchandise exports

Over 35% of the national total

WA Share of Australia's Exports60.5

35.4

28.1

20.3

8.8

4.0 3.7

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

WA QLD NSW VIC SA NT TAS

bill

ions


Domestic Demand Growth Domestic Demand Growth (Australia & WA)(Australia & WA)

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1996-97 1998-99 2000-01 2002-03 2004-05 2006-07

Australia Western Australia

Source: ABS 5206.0


Business InvestmentBusiness Investment(WA, quarterly trend value)(WA, quarterly trend value)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

J un-97

J un-98

J un-99

J un-00

J un-01

J un-02

J un-03

J un-04

J un-05

J un-06

J un-07

Western Australia

Source: ABS 5206.0

$ billion


Western Australian Western Australian Government’s Capital Works Government’s Capital Works

Program - $21.6 billionProgram - $21.6 billion

State Housing19%

Electricity12%

Water Corporation12%

Roads12% Health

9%

Schools5%

Transport5%

Ports2%

Other21%

Law and Order3%


Infrastructure Spending Per Infrastructure Spending Per CapitaCapita

0

500

1,000

1,500

2,000

2,500

3,000

WA NSW Vic. Qld. SA C/wealth

$ Per Capita

Commonwealth unavailable until 8 May - likely to be around $400

Estimates for other jurisdictions are based on the most recent published estimates available.


Capital Works Program – Housing Capital Works Program – Housing AuthorityAuthority

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

$ million


Capital Works Program – Water Capital Works Program – Water CorporationCorporation

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

$ million


Capital Works Program – Western Capital Works Program – Western Power (Networks)Power (Networks)

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

$ million


Capital Works Program - RoadsCapital Works Program - Roads

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

$ million


Capital Works Program - HealthCapital Works Program - Health

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

$ million


Capital Works Program – Education Capital Works Program – Education and Trainingand Training

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

$ million


Capital Works Program – Law and Capital Works Program – Law and OrderOrder

0

50,000

100,000

150,000

200,000

250,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

$ million


Capital Works Program – Port Capital Works Program – Port AuthoritiesAuthorities

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

$ million


Pipeline of Potential Future ProjectsPipeline of Potential Future Projects Electricity generation & networks demand

pressures Water, wastewater and drainage demand pressures Fremantle Ports Outer Harbour Fremantle Ports Inner Harbour Deepening Port Hedland Port Expansion Oakagee Port and Rail Development Bunbury Inner Harbour Extension of the Northern Suburbs Railway Line


Pipeline of Potential Future ProjectsPipeline of Potential Future Projects

Major Outdoor Stadium

New Museum

Old Treasury Building Redevelopment

Mounts Bay Development

Northbridge Link

Supreme Court Building


Policy and Planning FrameworkPolicy and Planning Framework

Government Financial Targets

Strategic Asset Management Framework

Business Case Support Process (Business Case Navigator)

Budget Process – Prioritisation of Projects

State Infrastructure Strategy


Government Financial TargetsGovernment Financial Targets

Financial Strategy Statement:

The Government’s financial strategy is firmly based on achieving general government surpluses sufficient to maintain a Capital Works Program that meets the State’s needs for essential social and economic infrastructure, while containing net debt to affordable and sustainable levels.

Source: Budget Paper Number 3, page 10


Government Financial TargetsGovernment Financial Targets

Legislative requirement (Government Financial Responsibility Act 2000)

Accountability and Transparency

Sound financial management and decision making tools

Similar arrangements in other jurisdictions


Government Financial TargetsGovernment Financial Targets Maintain or increase real net worth of total

public sector

Achieve an operating surplus for the general government sector

Retain the triple-A credit rating Maintain the net debt to revenue ratio for the total non-

financial public sector at or below 47%

Ensure real per capita own-purpose expenses for the General Government Sector do not increase

Maintain the State’s tax competitiveness


Strategic Asset Management Strategic Asset Management FrameworkFramework

Endorsed by Cabinet August 2005

Framework for strategic asset management

Processes to manage assets from planning through to disposal, including: Simplifying and updating existing policies

Addressing gaps in current asset management policy

Additional reporting requirements designed to encourage implementation of the policies

PDF of policies now available as on DTF website


Strategic Asset Management Strategic Asset Management FrameworkFramework

Policies– Strategic Asset

Management Framework

– Strategic Asset Plans

– Capital Investment Policy

– Maintenance Policy

– Asset Disposal Policy

Guidelines– Business Case Guidelines

– Project Evaluation Guidelines

– Project Definition Plan Guidelines

– Cost Management Guidelines

– Value Management Guidelines

– Lease Analysis Guidelines


Business Case NavigatorBusiness Case Navigator

1. Agency Concept Plan

2. DHW Assess Risk Profile

3. Determine Business Case Process/Detail

4. Agency Prepare Business Case

5. DHW Audit Business Case Quality

6. ERC Business Case Endorsement

7. Commence Definition Plan Stage


Budget Process – Prioritising Budget Process – Prioritising ProjectsProjects


Budget Process – Prioritising Budget Process – Prioritising ProjectsProjects

Capital Investment Prioritisation and Resource Allocation Process (CIPRAP) Provides for the ranking of projects in terms of:

– Importance

– Benefits

– Achievability

Rate the proposal against each criterion, using the approved scale

– High

– Medium

– Low

All criteria are given equal weighting


BenefitsBenefits

What contribution do the intended outcomes of the project make to the achievement of the Government’s objectives? People and communities

Economy

Environment

Regions

Governance


ImportanceImportance

Election / Government commitments: Public awareness

Timing constraints

Significance

Consequences of not proceeding with the proposal: Economic implications

Environmental implications

Political implications

Statutory requirements

Criticality

Urgency


AchievabilityAchievability

Reliability of the estimates Potential for scope and cost

“creep” Capacity to deliver the

project:

Finance

Time

Complexity

Expertise

Materials & Equipment Agency’s track record

Support/Opposition:

From community

From Government

From other jurisdictions Coordination – other

projects; other agencies Planning & approval issues

Native title, land, planning, approval processes …

Disruption to public and commerce


State Infrastructure StrategyState Infrastructure Strategy Better awareness of infrastructure pressures over

next 20 years Improved information to help the private sector

identify investment opportunities more clearly Greater certainty in planning and better-informed

decisions by public and private sectors Engage private sector and other jurisdictions to

share responsibility for infrastructure provision fairly Ensure proposals for future investment are

affordable and appropriate


ChallengesChallenges

Strategic Review of Capital

Cost Escalation

Building Capacity

Improved Project Planning


Strategic Review of CapitalStrategic Review of Capital

Expected timeframes for a number of projects were not realistic in current market, so cashflows revised (by 6 to 12 months)

Small number of projects suspended for further analysis

Members Equity Stadium

Centre for Excellence and Innovation in Infrastructure Delivery established


Why do large projects fail?Why do large projects fail?


Risk CategoriesRisk Categories

Industry capacity Regional locations Inexperienced Client Agencies Innovative designs Compressed timeframes Early Project announcements


United KingdomUnited Kingdom

Traditional Procurement Performance

United Kingdom 2002-2006

Performance 1999

Review 2004

Objective 2006

Cost Overrun 73-75% 45% 30%

Late Delivery 66% 37% 27%

Source: NAO 2005 Improving public services through better construction, report by the Comptroller and Auditor-General HC 364-4, NAO


The Way ForwardThe Way Forward

Centre for Excellence and Innovation in Infrastructure Delivery

Focus on “Up Front Planning”

Gateway

“On Time, On Budget”

Managing WA Capital Works Programs

Documents

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