Australasian focused infrastructure review

Jon Grayson is responsible for financial operations, commercial operations, and the infrastructure and housing group at Treasury. He spoke at the IPWEA NZ 2018 Conference in Rotorua on an infrastructure review that looks across the Tasman.

“OUR NATION IS FACING a bow wave of infrastructure investment in the not-too-distant future, replacing the likes of 100 year-old water assets and schools where the average age of the estate is over 40 years,” says Grayson.

“I could go on, but the point is there is a large task ahead of us. The issue is, can we turn that challenge of providing good efficient infrastructure into an opportunity?”

Infrastructure by its nature has a catalytic-like effect on economic growth and wellbeing, he adds, so getting planning and investment decisions right pays huge dividends.

“Whether that’s in efficiently moving people and goods around the country, whether it’s in enhancing our global competitiveness by having efficient pathways to market, whether it’s in providing quality utility services like water and electricity at a reasonable cost, or whether it’s about providing infrastructure that allows government and local government to provide social services effectively.”

Infrastructure also tends to be “very expensive kit”, he says. “So, ensuring that there is a competitive market for the delivery of new infrastructure, or ensuring the incentives are in place for more efficient utilisation of existing assets can save considerable costs.”

As the rate of technological advancement accelerates, so too does the challenge. Therefore ensuring the system is in shape becomes even more important, he says.

“Just to use, as an example, electricity distribution traditionally has involved a very simple business model of moving electrons from generators to consumers with very low risk monopoly returns.

“With technological change the prospect of off-grid transmission and bulk energy storage, and the roll-out of electric vehicles, those dynamics change dramatically and leaves us with the risk of stranded assets unless those providers have the agility and adaptability to convert a threat into an opportunity.”

Our three waters is another sector facing significant challenges. “At one level, we could simply change the water quality regulations, but I doubt that would be sufficient. It is unlikely to provide a sustainable solution if the industry is not in a position to respond and invest to meet those higher standards.

“We currently have 78-odd water authorities, mainly very small water providers across the country. So, the question is whether they are in the position to be able to respond to the demand for higher quality water standards, and step up to the mark to replace, upgrade or expand water infrastructure to meet those standards.

“Our Department of Internal Affairs, with support from Treasury, is leading a review, which will provide options on industry structure, regulatory settings – and I’m talking about not just quality, but also economic regulation for consideration by Government and its local government partners.

“In this respect, I appreciate IPWEA’s role in organising the Water Summit in Wellington in May. It was an ideal forum for airing strategies and solutions for this challenge.”

“This review will consider whether there are better fits in aggregating central Government infrastructure procurement and transactional capabilities, and offering that to the local government sector and other agencies.”

The Australasian infrastructure connection

Another area of focus for the National Infrastructure Unit within Treasury is a review into what is referred to as ‘infrastructure institutional settings’, he says.

“This is a review at the highest level. How do we organise the system so that the incentives within the system produce the right outcomes? Are those incentives right throughout the system from planning right through to delivery?

“Whether the way the government plans its own infrastructure investment is conducive to good long-term outcomes; or whether the incentives are right for other infrastructure providers, like local government and the private sector, to produce the right outcomes.

“This review will consider whether there are better fits in aggregating central government infrastructure procurement and transactional capabilities, and offering that to the local government sector and other agencies.

“And how we get the settings right to build capability and innovation across the value chain, and whether we can get a good handle on the pipeline of projects coming up and understand its impact on the market.”

Grayson says “the seeds” of this review is already manifest in what’s called the Australian/NZ Infrastructure Pipeline.

“We want to build on that, strengthen that, give it greater credibility to excite the market about the opportunties in this country.”

In terms of encouraging a competitive market to ensure value for money, can we develop a single cross-Tasman infrastructure market, he asks?

“The potential outcome of this review, and something that government will consider, is whether we should have an independent infrastructure entity.”

This could be similar to the various infrastructure bodies at the Australian state and federal level, he adds.

“Those Australian infrastructure bodies are showing promising signs of taking a more long-term approach to infrastructure planning and investment, a focus on the highest-priority projects that have the greatest value, improving the standard of analysis to get those priority projects further up the list, and ensuring that planning is joined up.”

Grayson says “the seeds” of this review is already manifest in what’s called
Australian/NZ Infrastructure Pipeline.

During question time Grayson was asked how we will compete against the Australian market in terms of contractors doing the project works?

“That is something I do hear quite a bit… that the action is in Australia, it’s a much bigger market.

“I don’t buy the premise that investors, contractors, all participants in the infrastructure sector won’t be attracted to New Zealand. If you took that concern to its logical extent, we would only see activity in Sydney and Melbourne.

“These players are rational. They will go where the business is, where the demand is, and where there is a conducive business environment; and they have confidence to invest in capabilities here if they have the confidence that projects will be delivered.”

“I think a credible pipeline is an important part of that… that allows them to plan and invest in capability here with some certainty.

“But that pipeline itself, to be credible, needs to have a robust strategy behind it so people have some confidence that those projects will be delivered.

“Simple things like a consistency of approach in the way we look at risk allocation between the government and private sector; documentation; seeing the same people across the negotiation table.

“And then there are other things that we could look at like harmonising standards between Australia and New Zealand [such as] mutual prequalification and ensuring the bidding rules are transparent and encourage innovation.

“I’m quite optimistic that if we get those things right, investors and contractors will come.”

This article was first published in the August 2018 issue of Contractor Magazine.

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