Aussie infra market in need of reform

There is plenty room for improvement in infra financing, funding and procurement that could lead to savings of A$1bn a year, according to a draft report by the Productivity Commission.

Judicious use of pricing mechanisms and strengthening transparency in the processes for project identification, selection, design and implementation could increase private investment in public infrastructure as well as result in savings of A$1 billion a year, Australia’s Productivity Commission (PC) has found.

The Productivity Commission is the Australian government's independent research and advisory body on a range of economic, social and environmental issues with the aim of helping local governments make better policies.

“Governments have it in their power to attract higher levels of private infrastructure investment, and to improve their own capacity to fund infrastructure, even in the presence of apparent borrowing constraints,” PC presiding commissioner and commission chairman Peter Harris said in a statement.

The Commission’s recommendations include introducing road user pricing, the adoption by governments of better practice in procurement processes, governments using greater penalties for unlawful industrial disputes and leveraging their buying power for better industrial relations practices.

“The report finds that pursuit of these reforms could readily save A$1 billion a year, as a conservative target,” PC said in a statement.

The Commission is seeking written feedback on the draft report by April 4 and will hold public hearings in early April. The final report will be released in late May.

Industry Super Australia (ISA), an umbrella organisation representing superannuation funds, welcomed the PC’s findings saying the report signalled a “super breakthrough”.

“While it is already beyond doubt that superannuation is building Australia, this report reinforces just how much more can be done if policy makers can finally get it right,” ISA chief executive David Whiteley said in a separate statement.

“Specifically, we welcome the PC’s singling out of ISA’s innovative ‘inverted bid model’ to better price risk and avoid fee gouging by short term investors,” he added.

In December 2013, ISA, which manages collective projects on behalf of a number of industry super funds, had responded to an Issues Paper released by the Productivity Commission on the funding and financing of public infrastructure in Australia.

Its inverted bid model, which it proposed in that submission as a way to encourage increased participation of long-term equity investors in greenfield infrastructure projects, calls for separate tenders.

This means the government would tender for the long-term owner-operator first, followed by separate bids for construction, operation and maintenance, and debt.

The model will reduce bid costs and bring to the table a more diverse range of players, which will allow competitive selection of the best of the best construction, debt and O&M solutions, according to ISA.