Australia’s Tantalizing Lessons on Privatizing Infrastructure

[M II A II R II K]

Australia’s Tantalizing Lessons on Privatizing Infrastructure


June 9th, 2017

By CLEMENT TAN

Read More: https://www.citylab.com/solutions/20...ership/529761/

.....

In July 2008, facing the fact that inadequate infrastructure could limit economic growth, the Australian government decided to do what it had never done before: infrastructure planning on a national level. That month, the federal government created a statutory body—Infrastructure Australia—that brought together the public and private sectors to devise a long-term strategy and prioritize key projects for funding.

- The agency’s mandate includes auditing the country’s significant infrastructure network and developing 15-year rolling masterplans that specify national and state-level projects. It finished its first audit in 2015, followed by the first masterplan last year. It maintains a list of priority projects that is updated monthly, with a detailed business case study for justifying each classified high priority—which partly accounts for its bipartisan success. --- And there is more to be gained from the Australian experience. The country is seeing early success, not only from garnering bipartisan political support for infrastructure projects, but also by holding “deep conversations” between various public and private stakeholders about the problems that needed to be solved.

- “You won't get change just by identifying projects,” Mark Birrell, Infrastructure Australia’s chairman said at McKinsey’s Global Infrastructure Initiative Summit last week in Singapore. “You also have to understand the problems that were causing the absence of funding or the absence of approvals, so we sought to generate debate about the reforms that were needed to create better and deeper markets in infrastructure.” --- Australia’s rethinking of the way it was purchasing and financing infrastructure involved the “recycling” of assets in a partnership between public and private entities. The basic idea is to sell or lease existing public assets such as ports and roads and use the revenue to fund new infrastructure investments.

- Under the program, the federal government promised the New South Wales state government A$2 billion in return for leasing 49 percent of the state’s electricity assets, the Australian Financial Review reported. The money will be ploughed back into a series of public roads and rail projects, including expanding the Sydney Metro. While the federal asset recycling incentive program has since been discontinued by the current Prime Minister Malcolm Turnbull, the three-year program has yielded several eye-catching transactions, including the A$9.7 billion paid for a 50-year lease for the Port of Melbourne by four investment funds. “Australia needed to change the status quo: the way it was purchasing infrastructure, the way it was funding infrastructure,” Birrell said.

- “The big lesson really is around rigor,” says Tyler Duvall, a Washington-based McKinsey partner who advises clients on capital projects and infrastructure. “You don’t need to create a new institution to have rigor. The current processes can incorporate a lot of the structured thinking the Australians have done.” Still, there are several limitations to deriving Australian lessons for the U.S. --- Public-public partnerships remain largely elusive in the U.S., with the bulk of projects currently concentrated on Florida, Virginia, and Texas, Duvall says. In 2016, the American Society of Civil Engineers estimated the U.S. will fall $1.44 trillion short of what it needs to spend on infrastructure through 2025. This funding gap could translate into a loss of 2.5 million jobs and $4 trillion of gross domestic product from the economy.

- Current ownership structures may also inject another layer of complication. New York’s LaGuardia Airport was cited by Vice President Mike Pence when he visited Australia in April as an example of an asset that could be improved with private capital, but the airport is operated by the Port Authority of New York and New Jersey, a joint venture between the two states. Meanwhile, two of America’s largest ports, at Long Beach and Los Angeles, are operated by city governments. Funding for infrastructure projects usually flow from the federal government to state governments. It would be difficult to decide how to split the proceeds between the two states if assets belonging to the joint venture were sold to private investors.

- “It’s going to evolve very differently in the U.S. compared to the other countries,” Duvall says. “U.S. has very specific politics, but the model of getting consensus for a good idea, building capacity to do it and then getting projects that you can drive to completion to show everybody else these are good meritorious investments to make, that will ripple through the U.S.” That political landscape could derail plans to create a new infrastructure commission in the mold of Infrastructure Australia, given the broad difficulty such attempts face in Congress. President Trump’s divisive appeal probably won’t help, either. A truncated look in the Trump administration’s first budget allocation for transportation infrastructure has already provoked a backlash from Democrats.

- One way the Aussies have managed to achieve bipartisan political agreement has been to publish a list of top-priority projects, along with policy and business case studies involving cost-benefit analysis that justify the urgent need for these projects That the list of top priority projects is being derived by a panel of various public and private stakeholders also aims to give it more objective credibility. "It starts when everybody has a broad understanding that we've got a problem that's got to be fixed," Birrell says. "You need a burning platform if you're going to have people talk about the need for change."

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[llamaorama]

Sounds like robbing peter to pay paul.

What are conservatives going to do in Australia, NZ, the UK, the US, etc, when everything that can be sold of is sold, when taxes are are low as they can sustainably be, etc, and everything that was new is old and in decay? Sometimes it feels like all the civic prosperity that came from the 20th century is being given up for short term gains while the west loses power to the far east.

Is it really such a good idea to sell off the electric grid! in order to get a few more bucks to build a "metro", which is more of a heavy rail suburban train, in one small city with low density suburbs? Where most people already have trains to commute on and where buses and self driving cars could do more heavy lifting in the future? A city with extreme costs of living and restrictive planning that will never be urban outside the CBD?

I have a better idea, maybe we should spend on infrastructure more wisely. There should be less wasted on both freeways and on low ridership transit projects. Lets fix things that are broken, make practical safety improvements, and use infrastructure as a tool in more holistic regional planning efforts.

I've always wondered about the economic projections of infrastructure spending and how reasonable they are in already highly developed countries. It makes sense that if you build a new highway in a place like Ethiopia were there was nothing but colonial era dirt roads before, it will immediately unlock growth because suddenly a truck can reach a city from a port in less than a day, the state of logistics goes from the 19th century to the 21st as soon as you cut the ribbon. But if you expand a highway that was only somewhat congested in the USA, resulting in a 30 minute travel time improvement, what radical change are you making that is supposed to return billions back into the economy like planners claim? If you spend 2 billion to build a light rail extension that moves 10,000 more people, of whom 9,000 previously rode a bus and actually had a shorter trip before, what good is it?

Also maybe we should solve the problem of costs being too high. The article that was shared here before that discussed how expensive infrastructure is in the US was pretty informative.

[Busy Bee]

Short answer: Conservatives are fools and wrong on just about every issue. They should never be in control of the government, especially on the federal level.

[electricron]

Originally Posted by Busy Bee

Short answer: Conservatives are fools and wrong on just about every issue. They should never be in control of the government, especially on the federal level.

What cool aid have you been drinking?
It is easy to spend other people's money!

[M II A II R II K]

Once everything is sold off the government can sell air rights and stuff.

[Busy Bee]

Originally Posted by electricron

What cool aid have you been drinking?
It is easy to spend other people's money!

Earth shattering comment. Is that your tired political go-to?

Taxes are the price of civilization.

You're from Texas so you probably wouldn't understand...

[mhays]

I don't know Australia's experience, but these deals seem to go badly pretty often.

For example sometimes they have clauses that force local governments to do the wrong thing....like not building competing options, even if the region really wants them. And of course the facility itself will be managed for profit, not civic betterment.

One example has been in place since the 1800s...railroad easements. Try building a skybridge over a rail line and see how much the company controls what you do, making everything substantially more expensive and time consuming.

[Pedestrian]

June 8, 2017 8:38 a.m. ET
89 COMMENTS
WASHINGTON—President Donald Trump’s plan to tap the private sector to rebuild $1 trillion worth of roads, bridges and rails has encountered an early problem: geography.

The administration says it will rely on private investors to supply the vast majority of cash to support a decadelong infrastructure rebuilding effort. But members of Congress from rural areas are wary.

That is because private investors are looking for infrastructure projects that throw off steady streams of revenue, from which they derive their profits, and those tend to be found near population centers.

Some rural lawmakers have already begun to raise doubts about the few specific infrastructure proposals Mr. Trump has made.

Republicans such as Sen. Jerry Moran of Kansas have questioned Mr. Trump’s endorsement of a plan to privatize the air-traffic control system, saying private ownership could give short shrift to small rural airports.

Sen. John Barrasso, (R., Wy.), chairman of the Senate’s environment and public-works committee, has told local media outlets that an infrastructure package shouldn’t require tolls on the lightly traveled highways in his state, the least populous in the country.

Support from Republicans, many who represent rural areas, will be crucial in getting a large infrastructure package through the GOP-led Congress, since many Democrats have said they would oppose efforts to rely on tolls, rather than federal aid, to pay for building projects . . . .

Some urban areas will be able to fund new projects like the Port of Miami tunnel, a public-private partnership Mr. Prasad helped oversee. That project is a 30-year partnership in which the state is reimbursing private investors who financed the construction through a series of “availability payments,” paid out of Florida gas tax revenues, as an alternative to a toll.

“It’s a good model of public-private partnership,” Mr. Prasad said, but one that requires a large and steady tax base, or a large stream of traffic that states are willing to toll to raise revenue.

“That can’t work on a reconstruction of I-70 in Kansas and Missouri,” he said, “because if you’re not going to toll that, they don’t have the revenue to put together an availability payment.”

https://www.wsj.com/articles/donald-...ess-1496925503

[Busy Bee]

^As they should be worried, because the entire thing, much like the man, is composed of bullshit. For 90% of needed works, the formula should be public funding for the public good - that is how infrastructure should be built.

[ChargerCarl]

Originally Posted by Busy Bee

For 90% of needed works, the formula should be public funding for the public good - that is how infrastructure should be built.

Unfortunately many Democratic politicians confuse "public good" with "fat union paychecks."

[Busy Bee]

That may be a peripheral problem, but I don't think the vast majority of Democratic or progressive politicians wake up in the morning deciding how to jerk off the union base that day. It's not their primary driving concern like the insistent devotion to voodoo economics or suppressing voting (subverting democracy) is for Republicans.

[Pedestrian]

Originally Posted by Busy Bee

That may be a peripheral problem, but I don't think the vast majority of Democratic or progressive politicians wake up in the morning deciding how to jerk off the union base that day. It's not their primary driving concern like their insistent devotion to voodoo economics or suppressing voting (subverting democracy) is for Republicans.

Can we stick to criticizing the ideas, not the people? I guarantee you that in California, Democrtic politicians think about keeping their union funders and election day work force happy every bit as much as some Republicans think about the issues you raised. We see it in almost everything that comes out of the legislature.

But it's not what this thread is about. The issue here is that private funding of infrastructue is only possible where there are likely to be private profits to be made and some needed infratructure can never be profitable--enough that we need an alternative model. And I agree with you that the private funding model is really likely to work in a minority of projects.

As it happens, there are quite a few publicly traded (on Wall St) funds and companies that deal in private infrastructure including those managed by the big Australian company MacQuarie (as well as the equally big Canadian company Brookfield). Judging by what MacQuarie owns, they are more interested in energy projects and things like ports and terminals than roads. Brookfield, I know, does own toll roads in Brazil and a railroad in Australia.

[ChargerCarl]

I would question how needed some rural infrastructure really is in regards to transit. If anything we've built too much capacity in the sticks while shorting more heavily populated areas.

[jens]

Originally Posted by Busy Bee

Earth shattering comment. Is that your tired political go-to?

Taxes are the price of civilization.

You're from Texas so you probably wouldn't understand...

In other words, every successful, wealthy family has to support five less well-off families of dole bludgers.

[Busy Bee]

More to the focus of this thread, I was in a broader sense referring to infrastructure and funding of institutions both physical and non that makes a country a country. I guess the misguided, class resentment filled grievance voter isn't confined just to the US.

[Pedestrian]

Originally Posted by ChargerCarl

I would question how needed some rural infrastructure really is in regards to transit. If anything we've built too much capacity in the sticks while shorting more heavily populated areas.

Rural "infrastructure", by which is largely meant interstate highways, are what gets goods from one side of the country to the other. As someone who has never lived far from salt water but has driven coast to coast at least 3 or 4 times, I value these roads as much as anyone living in Kansas. I am presently awaiting a package that originated in Texas to arrive in California after, I assume, travelling a lot of rural iinterstate between.

And by the way, during my cross-country trips I saw trucks . . . lots and lots of trucks bringing goods from everywhere to everywhere. And nowhere did the roads seem to have "too much capacity".

I imagine the use and purpose of long distance highways is the same in Australia. I don't know if their capacity is to much, too little or about right.

[ChargerCarl]

Originally Posted by Pedestrian

And by the way, during my cross-country trips I saw trucks . . . lots and lots of trucks bringing goods from everywhere to everywhere. And nowhere did the roads seem to have "too much capacity".

I imagine the use and purpose of long distance highways is the same in Australia. I don't know if their capacity is to much, too little or about right.

I think a question that needs to be answered is if these roads are so vital and necesssary for trade then why can't they be privately built and operated in the same way that freight rail is?

[tayser]

Originally Posted by llamaorama

Sounds like robbing peter to pay paul.

What are conservatives going to do in Australia, NZ, the UK, the US, etc, when everything that can be sold of is sold, when taxes are are low as they can sustainably be, etc, and everything that was new is old and in decay?

Hate to burst your bubble but leasing the Port of Melbourne (mentioned in that article) was bi-partisan and the current state government is anything but conservative: ALP, and the left faction is the dominant one at the moment.

The proceeds of the lease are going into the pot of removing 50 level crossings on the Melbourne rail network (we have 150+ in the metro area). http://levelcrossings.vic.gov.au/crossings

[tayser]

Originally Posted by Busy Bee

Short answer: Conservatives are fools and wrong on just about every issue. They should never be in control of the government, especially on the federal level.

Again, sorry for the bubble bursting but PPPs in general have been used by both sides of politics here. In the 90s, the Kennett state government (Liberal) went ballistic and privatised the state bank of Victoria, the generation and transmission power assets and now the current state government (Labor) are the ones who entered into leasing the Port of Melbourne for 50 years.

The lease on the Port hasn't stopped the state government kicking off plans for a second containerised port on Port Phillip however - advice for that was released recently.

Also, Fishermans Bend will take probably 40-50 years to complete, about the same time as the lease runs for - and once that lease ends, the development of Fishermans Bend will put pressure to redevelop the existing docks (which are all adjacent to Fishermans Bend).

Liberal = the centre-right party of classical Liberals and Tories
Labor = the [traditional] political wing of the union movement but now the major catch-all centre-left party.
Both parties: espoused neo-liberal economic policies for 2+ decades

[Pedestrian]

Originally Posted by ChargerCarl

I think a question that needs to be answered is if these roads are so vital and necesssary for trade then why can't they be privately built and operated in the same way that freight rail is?

They can be. But the local politicians don't want them to be tolled. I think long distance travelers and commercial users could live wth reasonable tolls.

But one issue it seems to me is that if we are going to start applying tolls to interstates built decades ago, then fairness requires a level toll (so much per mile) applied nationally to all interstates (whether or not private interests want to take them over). And if we are going to do that, maybe an increase in the gas tax or what has been proposed as a mileage tax on cars (so electrics and hybrids pay their fair share--they put as much wear on highways as other vehicles) might be easier and fairer. Some people object to the mileage tax as a privacy issue because it might require GPS devices on all cars but paying tolls also involves privacy: The powers-that-be can track you by where and when you paid a toll unless you pay in cash which is increasingly impossible (you no longer can pay the Golden Gate Bridge toll in cash for example).

But I do think the rural folks have a very valid point that they shouldn't be asked to pay with local money the cost of maintaining roads that are national arteries.