Infrastructure Productivity Garry Bowditch Chief Executive - PowerPoint PPT Presentation

Infrastructure Productivity Garry Bowditch Chief Executive Presentation to Warren Centre for Advanced Engineering, Sydney June 2015

What is happening to infrastructure investment? 4

Public Corporations (utilities) investment trends have reflected policy and governance reforms and asset renewal cycles Real Public Corporations Investment per capita (1984-2014) $, real per capita $1,600 Public ownership of Utilities Mining Boom/GFC $1,400 response $1,200 Major asset renewals Fiscal (electricity/water) constraints/consolidatio $1,000 n Corporatisation/Privatisation $800 $600 $400 $200 Source: ABS National Accounts, Table 54. $- 5

Transport & Utilities investment is growing strongly $, real per capita Net Capital Stock per capita, EGWWS and Transport $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 EGWWS K per capita ($,real) $6,000 Transport K per capita ($,real) $4,000 Linear (EGWWS K per capita ($,real)) $2,000 Linear (Transport K per capita ($,real)) $- - Investment in Electricity, Gas, Water and Transport remains above trend, reflecting cyclical catch-up (hence strongly growing net capital stock). - But questions remain about the wisdom of some investments as productivity has fallen in both industries. 6

High input growth not matched by growth in output • Productivity has declined since 2003-04 – Ramp-up in mining boom investment without corresponding increase in output, but benefits from production boom now – Very poor performance in EGWWS, mothballed desal plants, over-spec NEM. 7

Productivity Comparisons for Electricity Distribution Source: AER November 2014, Annual Benchmarking Electricity

But it is clear that major pressures remain 9

Infrastructure costs & efficiency considerations?

Planning Assumptions • Does history repeat? Transport Energy

Asset Renewal Cycle 12

Overall result - rapidly rising infrastructure costs 13

Mega-Project or just Mega-Expensive-Project? Gateway Bridge – 1 v 2 14

Cost Inefficiencies driving up investment risk $4 -$5 billion pa is lost to inefficiencies & wastage Environmental Management • – EPBC Act, Fisheries Act, Environmental Protection Act, Vegetation Management Act, Water Act • Planning – Sustainable Planning Act • Technical standards – Many instances of more onerous standards; questionable whether benefits exceeds costs • Health and Safety standards

What can be done to improve efficiencies? 16

Source: ABS, Summary of IT Use and Innovation in Australian Business, 2012-13 10 20 30 40 0 31 Retail 20 Infrastructure ≠ Innovation 31 Manufacturing 24 30 Wholesale 30 28 Media & 19 Teleco 25 Professional 18 services 25 14 Other services 22 Recreation 17 services 22 15 Health care 19 Hospitality 16 18 Financial l 20 services 14 Administrative 18 services 12 Real Estate 15 services 11 25 Mining 11 Construction 12 Transport & 11 16 Warehousing Electricity, Gas & 11 16 Water services 10 Agriculture 10

Better priority Better Better setting governance incentives • Less focus on • • Ensure assets have Clarify roles of major ribbon ‘owners’ whose Commonwealth cutting returns depend on / State bodies • More use of • life-cycle Better align well-targeted performance analysis ‘pinch point’ • Improve contracts methodologies interventions • to better align risk, Greater • Improved life effort and reward transparency at cycle • Use prices or all stages management • shadow prices to Improve signal costs public/private • Benchmark service balance performance, reward for outcomes 18

Garry Bowditch CEO SMART Infrastructure Facility +612 4298 1241 Garry_bowditch@uow.edu.au