Preparation of Submissions to Infrastructure Australia

1. Preparation of Submissions to Infrastructure Australia Mende Gorgievski Principal Consultant, GHD Economics and Strategy South East Australian Transport Strategy Inc. (SEATS) 25 November 2011

2. Purpose of presentation This is a high level summary only • Who is Infrastructure Australia (IA) • IA project funding submission process • What does IA require in project funding submissions • The key steps in preparing a conforming submission • Some useful pointers to help with the more challenging steps • Implications for SEATS submissions to IA 2

3. Context • Classic economic problem • Unlimited wants, limited resources • Demand for project funding is far greater than funds available • Traditionally, infrastructure project decision making environment • Ad hoc • Poorly coordinated • Inconsistent approaches to funding evaluations and approvals • Driven by short term considerations • Therefore, there is a need to • Adopt a thorough evidenced based approach • Prioritise project funding 3 3

4. Who is IA and what does it do ? • Statutory body, 2008 • To provide informed advice to Governments and investors on Australia’s current and future infrastructure needs • Objectives – to improve the efficiency, utilisation, safety and capacity of Australia’s infrastructure base • Functions • Evaluate project funding submissions for investment in new or enhancements to existing infrastructure • Uses submission preparation and evaluation frameworks that are rigorous, objective and transparent • Develop “Infrastructure Priority Lists” for Australia's infrastructure needs 4 4

5. Who is IA and what does it do ? (continued) • Coverage • “Economic” infrastructure • Transport (road, rail, ports, intermodal terminals), cities, energy, water, broadband and indigenous services • Approach • Nationally significant infrastructure • Networks and corridors • Removing bottlenecks and gaps • Strategic • Looking at how the pieces should fit together to best achieve the objectives • Maximising value for money • Identifying and fast tracking the most viable projects • Low hanging fruit 5 5

6. Project proponents and nature of IA funding • Submissions proponents include • Federal and State Government departments • Councils • Statutory infrastructure asset owners and operators • Industry bodies • Private companies and investors • Can project proponents obtain funding from IA to prepare their submissions • Generally no • Some funding available for planning of very large projects • IA funding is mainly for construction of projects themselves 6 6

7. Preparing submissions to IA • Based on the Reform and Investment Framework Template, Oct 2010 • 7 stage process 7 7

8. Stages 1 and 2: What does IA require • Stage 1: Goal definition • List objectives of project (ie., is it attempting to lower freight transport costs, eliminate road accidents, improve community amenity ?) • How do the project objectives directly align with existing national, state, regional or local transport infrastructure strategies/objectives? • Stage 2: Problem identification • Present the data showing the extent of current problems (ie., traffic congestion, crash rates, delay costs, pollution levels, limited access) • Outline likely future consequences of problems persisting (ie., traffic gridlock, infrastructure asset failure, unacceptably high community impacts) 8 8

9. Stages 3 and 4: What does IA require • Stage 3: Problem assessment • Demonstrate the extent to which the problem is currently affecting the nation, state or region more generally (ie., X% of passenger vehicle traffic flows across the region, Y% of the state’s export and import cargoes are being adversely affected) • Stage 4: Problem analysis • Outline the underlying causes of the problem (ie., if it is a lack of road capacity what has caused the lack of road capacity, regulatory constraints, mispricing, demand spike) • Suggest why this problem has a higher priority than other problems in your network or region The quality of Stage 1 to 4 sections of submissions has improved markedly since the first round of submissions (in 2008-09) 9 9

10. Stages 5 - 7: What does IA require • Stage 5: Options generation • Describe the project investment options • Stage 6: Options assessment • Filter the options via strategic merit testing (ie., rank the options based on economic, environmental and social criteria) • Cost benefit analysis to obtain Benefit Cost Ratio for preferred option(s) • Stage 7: Solution Prioritisation • Consideration of the Benefit Cost Ratio together with the broader strategic fit and deliverability risks of the project It is the Stage 5 to 7 sections where submissions can run into difficulties 10 10

11. Stages 5 Options Generation: Some pointers Options • Rushing to early judgements, grand plans, wish lists • Lack of alternative options provided to the core project investment option • IA likes to see non capital investment options presented • Can more be done through better use of existing infrastructure ? • Outline whether improved co ordination, planning, regulation and pricing can be achieved • Unrealistic base case (or “do nothing” case) • In reality, a “do minimum” is much more likely than a “do nothing” case • Better to be upfront and say “some money will need to be spent even if the project does not proceed, this means the full benefits of the project will not be realised” 11 11

12. Stages 6 Options Assessment: Some pointers Cost benefit analysis • Assumptions and input parameters not properly explained or sourced • Be transparent • Use mandated sources and methodologies (ATC, Austroads guidelines) • Unrealistic demand assumptions • Adopt reasonable traffic demand forecasts • Discuss achievability of forecasts compared to history • Where will the demand come from ? • Vague capital cost estimates • Provide detailed probabilities for build up of cost items • Include construction cost escalation rates • Avoid large contingencies (provides false sense of certainty) • Loading up benefits to pump up the Benefit Cost Ratio • Avoid over reliance on wider economic benefits to justify the project 12 12

13. Stages 7 Solutions Prioritisation: Some pointers • Concluding the submission with a number (ie,. Benefit Cost Ratio) • Provide guidance on how the project will be delivered and managed on the ground • Outline how construction risks (ie., risk of not securing labour resources) • Explain community and political risks (ie., backlash due to disruptions) • Assuming all the funds will come from the Commonwealth • Consider a mix of funding (Commonwealth and State) • IA actively encouraging greater role for private sector funding • Closing the door on the submission • The IA submission evaluation process is a continuous one • The submission deadline does not mean you have missed the boat • IA always provides the opportunity for data and explanation to be added to your submission. IA open door policy 13 13

14. IA prioritisation of project funding submissions Outcome is a prioritisation pipeline for projects • “Early stage” • Initial analysis conducted • “Real potential” • Considerable analysis undertaken • Further work required to identify best project option • “Threshold” • A few remaining issues to be worked through • “Ready to proceed” • All analysis done • Robust delivery and funding mechanism in place • Shovel ready 14 14

15. SEATS priority projects • As at early 2010 • NSW 2011 - 2014 • Picton Road • Princes Highway – various • Barton Highway • Port Kembla Outer Harbour • VIC 2010 - 2013 • South Gippsland Highway upgrade • Bass Highway duplication - Lang Lang-Anderson • Gippsland Logistics Precinct (Morwell) • Rail connections to Port of Melbourne and Port of Hastings 15

16. SEATS project sheet • Outlines general instructions • Project purpose • Options analysis • Economic, environmental and social analysis • Risks • Scope to build on these project sheets • More tailored guidance to SEATS members when undertaking IA submissions • For more information contact Mende Gorgievski • mende.gorgievski@ghd.com.au • (02) 4222 2355 16

17. www.ghd.com 17