RESTORING AND REFORMING AUSTRALIA'S INFRASTRUCTURE - 1 April 2005 Rod Sims Port Jackson Partners Limited - Melbourne Institute
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RESTORING AND
REFORMING
AUSTRALIA’S
INFRASTRUCTURE
1 April 2005
Rod Sims
Port Jackson Partners Limited
0KEY QUESTIONS
OBSERVED PROBLEMS KEY QUESTIONS
• Clear impediments exist to the • Can Australia afford to have higher
required investment in our energy economic growth?
infrastructure – will it only lead to ‘private riches’
• Our inter-capital roads are seeing but ‘infrastructure squalor’?
more, and larger trucks, and our rail • Alternatively, is infrastructure reform
corridors are in disrepair required to achieve the higher growth
• All major cities are suffering increasing we seek through removing bottlenecks
road congestion and bringing higher productivity?
• East Coast surface and groundwater
systems are under great stress
• Most cities have low dam levels and
water restrictions
1HEADLINE PERSPECTIVES
KEY QUESTIONS HEADLINE PERSPECTIVES
• Can Australia afford to have higher • The current state of our infrastructure
economic growth? flows from our poor public policy
choices, not from high economic
– will it only lead to ‘private riches’ growth
but ‘infrastructure squalor’?
• Improved infrastructure policy will drive
• Alternatively, is infrastructure reform both higher economic growth through
required to achieve the higher growth higher productivity, and superior
we seek through removing bottlenecks lifestyle/environmental outcomes
and bringing higher productivity?
• The required policy change direction
and agenda are clear
– we need to get the signals right for
the necessary investment and
demand management
• A comprehensive COAG infrastructure
reform agenda is now needed
2ENERGY SECTOR KEY PROBLEMS
Most consumers do
The regulation of not face price signals
distribution investment to curb peak demand
and operation needs
significant improvement
100%
10%
Poor transmission
investment processes have Retail
regionalised the NEM 30%
ABARE
forecasts 15% Distribution
45%
demand gap
of 53% over Transmission
today’s supply
by 2020
Many confusing price
signals and poor policy
Generation is distorting generation Price to
investment decisions consumer
e.g. price caps,
greenhouse
3TRENDS IN INTER-CAPITAL FREIGHT
LAND TRANSPORT (BTRE 2003)
FREIGHT TASK MODAL SHARES
Million tonnes per annum Percent
Today Road
60 80%
Freight demand has consistently
grown faster than the economy, due to 70%
50 trends in centralisation of production
and increased product variety Thirty years
60% ago rail had
70% share,
40 road 30%—
50%
now the
reverse is true
30 40%
30% Rail
20
20%
10
10%
0%
1972 1980 1990 2000 2010 2020 1972 1980 1990 2000 2010 2020
4KEY PUBLIC POLICY PROBLEMS
PROBLEMS IMPLICATIONS
• The heaviest, longest travelling trucks • Day-to-day modal choice is distorted, it
are undercharged for their road use does not reflect the underlying cost
• Rail user charges are set after allowing differences
for a return on past sunk capital; road • Artificially low road user charges limit
charges are not what rail track owners can charge
• Different assessment criteria are used because of direct road/rail competition
for road and rail investment – this makes investment in rail
– road investment is based on unattractive, leading to poor
broader economic cost/benefit service levels
criteria (can include travel time • Rail track owners cannot charge up to
savings, fewer accidents, ...); rail their regulated price ceiling, so they
appraised usually on financial can increase charges whenever rail
terms operator capacity to pay rises
– this can strangle above-rail
investment
5RISING CONGESTION COSTS IN AUSTRALIA’S
MAJOR CITIES
CONGESTION COSTS IN AUSTRALIA’S MAJOR CITIES
$ Billions 1995
Total congestion cost:
1995 = $12.8b 2015
9.3 2015 = $29.7b
8.8
8.0
The 'cost of congestion' is the
value of the excess travel time and
6.0 other costs due to traffic not
moving under free-flow conditions
2.7 2.6
1.9
1.5
0.8 0.6
0.1 0.2
Sydney Melbourne Brisbane Adelaide Perth Canberra
6IMPACT OF A CONGESTION CHARGE
IN MELBOURNE, A.M. PEAK
CONGESTED VEHICLE HOURS AVERAGE TRAVEL SPEED
Thousand hours Kilometres/hour
1,208
–23% +50%
313
+103% –50%
759
707
266 307 19.7 15.2 22.7
894
441 451
2001 2021 2021 with 2001 2021 2021 with
congestion charge congestion charge
7URBAN TRANSPORT PERSPECTIVES
THE PROBLEM SOLUTION DIRECTIONS
• Increasing urban road congestion in • Move to some form of congestion
all cities pricing
– involves considerable wasted time – that is, actively manage
and so economic inefficiency congestion rather than let it
manage itself
• Many Government-owned public • Make public transport more efficient,
transport systems are losing share and which can encourage investment in it
not coping – some aspects of the mid 1990s
Victorian reforms could be
replicated elsewhere
• Some current urban transport planning • Improve urban transport planning and
approaches impose delays, co-ordination
unnecessary costs – consider moving aspects of
transport planning further to the
State rather than the local
government level
8RURAL WATER PERSPECTIVES
THE PROBLEM THE SOLUTION
• East Coast major surface and • Allow permanent trading in water
groundwater systems are under property rights all along the East Coast
serious stress and into South Australia
– of 325 surface water basins 84 are – based on sound science to
close to, or over used achieve wide acceptance,
– of 538 groundwater management particularly in terms of 'currency
units, 168 are close to or are conversion' factors
overallocated – allow 'low value' users to trade out
(ie win/win)
• Where appropriate, to ensure integrity,
• Many irrigation systems have very buy back allocations to restore healthy
poor reliability, insufficient water for river flows
high value users
• Poor water quality (e.g. salinity)
• Unhealthy rivers
9WATER USE IN AUSTRALIA—2000/01
ALL WATER BY END USE WATER USE BY AGRICULTURAL INDUSTRY
Total = 24,900 GL 100% = 15,000 GL $9,618m
Vegetables 3% 12% of
Grapes 5%
19% irrigation
Other Fruit 4%
water
Mining Sugar 8%
Manufacturing produces
2% 5% Rice 11% 14% 50% of
Electricity & gas 3% agricultural
7% Livestock, pasture 13% value
grains, other 17%
Water supply AGRICULTURE
7% 67% 3%
Cotton 15%
(90% is used for 4%
9% irrigated
agriculture) 16%
Household
Dairy
39% 13%
16%
Volume of Gross value
water used of irrigated
production
10MAJOR URBAN DAM LEVELS,
WATER USAGE GAP
CURRENT URBAN DAM LEVELS FORECAST (2025)
Percentage filled Gigalitres
Sustainable yield
‘GAP’
‘Excess’ usage % of sustainable yield
All cities are imposing water restrictions
Sydney 43% Sydney 600 226 (38%)
Melbourne 564 78 (14%)
Melbourne 60%
Perth 291 22 (8%)
Adelaide 205 6%
Perth 32%
Brisbane 195 64 (33%)
Adelaide 77% ACT 84 17%
Gold Coast 83 19 (23%)
South East Queensland 47%
Lower Hunter 79 13 (17%)
ACT 54% 2,113 395
Total (19%)
11SOLUTION DIRECTIONS
THE ‘HIDDEN’ PROBLEM SOLUTION DIRECTIONS
• Sydney city users pay $1.32 for every • Allow urban water prices for high users
1,000 litres of high quality drinking to reflect the marginal cost of new
water delivered to the home 24/7 supply
– this price covers the cost of water
treatment and delivery only; the • Use the proceeds to facilitate/fund the
price for the commodity is zero necessary investment
• Australians are very high water users • Allow urban areas to buy water
compared to other OECD countries currently used for agricultural purposes
– across the OECD there is strong at market rates
inverse correlation between price
and demand
12HEADLINE PERSPECTIVES
KEY QUESTIONS HEADLINE PERSPECTIVES
• Can Australia afford to have higher • The current state of our infrastructure
economic growth? flows from our poor public policy
choices, not from high economic
– will it only lead to ‘private riches’ growth
but ‘infrastructure squalor’?
• Improved infrastructure policy will drive
• Alternatively, is infrastructure reform both higher economic growth through
required to achieve the higher growth higher productivity, and superior
we seek through removing bottlenecks lifestyle/environmental outcomes
and bringing higher productivity?
• The required policy change direction
and agenda are clear
– we need to get the signals right for
the necessary investment and
demand management
• A comprehensive COAG infrastructure
reform agenda is now needed
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