The level of infrastructure investment planned or underway throughout Australia, particularly in the resource-rich states, is huge. According to a recent Business Council of Australia study Pipeline or Pipe Dream? Securing Australia's Investment Future, there is an investment pipeline of more than $920 billion in major projects underway, being planned or under consideration. Projects in the resources and infrastructure sectors comprise the bulk of this, with the average project now costing about $1.5 billion.
In Queensland, the story is no less impressive, with projects ranging from huge liqueified natural gas developments at Gladstone, new coal mines in the Galilee Basin, heavy haul rail lines to Abbot Point and various port developments. Add to this requirements for power, communications and water and you begin to appreciate the scale of activity - and money - involved.
While a number of resource projects have recently been deferred or are being reconsidered in the current market, the question that is now receiving considerable attention is how to fund those that do. The ability of governments to pay for infrastructure - whether ports for the resources sector or roads, tunnels and hospitals for the general public - is being tested both by the sheer cost of the projects as well as current budgetary constraints, given moves to reign in debt and maintain or regain credit ratings. Funding options involving higher taxes, user charges such as tolls or the sale of assets to raise money present their own obvious challenges.
In an environment characterised by more limited 'paying' capacity of governments, it is accepted that the private sector will need to play a greater role in financing and delivering infrastructure. In the resources sector, much of the essential infrastructure, such as ports and railways, is already being delivered and paid for by the mining and gas companies themselves. In any case, those companies would ultimately always fund the assets, in the sense that the costs incurred by government in developing them would be recouped through user charges. Increasingly, however, the resource companies are by necessity taking the lead in financing, building and operating railways, ports and other infrastructure essential for operations and exporting their products. The budgetary constraints facing governments may also make it more likely that, even when they take on the role of building and delivering infrastructure, they will look to the resource companies to pay some of the upfront capital costs.
The trend towards private sector financing and delivery of both resource-related and public infrastructure is likely to continue. With the private sector assuming more of this role, it is incumbent on governments to help pave the way for projects to be delivered. Faster and more streamlined approvals processes and increased flexibility in the labour market are two obvious examples of where governments can and should help. The resources sector is being hit by challenges on many fronts and stifled approvals processes and labour shortages/costs are two of the most significant.
Much of the current debate has naturally centred around where the money is going to come from and how the pool of funds available can be increased. A number of reviews and reports are underway or have been undertaken in order to formulate strategies for attracting additional investment in infrastructure. Various funding reforms have been proposed, ranging from greater use of user pays structures, more targeted investment in infrastructure that generates productivity increases and the sale of existing government-owned assets in order to 'recycle' funds to pay for new projects. As a country, we have a significant pool of superannuation funds so, not surprisingly, reforms are also being considered to encourage and facilitate greater investment by those funds.
Importantly, there is a recognition of the need for improved investment planning by governments. Not all infrastructure on the drawing boards can be built. Infrastructure pressures are likely to become more rather than less pronounced in the future and there must be greater emphasis on building those things that improve productivity and generate wealth. The private sector will need to play an increasing role in financing and delivering much of our infrastructure, be it roads or railways, hospitals or ports. The challenge is how we achieve this.
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