TRANSPORT SERIES: As Australia heads to another two important elections in 2019, NSW and federal, the issue of population growth and infrastructure is increasingly dominating the public discourse. In this latest edition in our transport series, we look at how major cities of Sydney, Melbourne, Perth and Brisbane are dealing with the building and the finance elements of the challenge.
In previous articles in this series, Curtain University Peter Newman professor of sustainability based at Curtin University observed that historically, it was private enterprise that pioneered large public transport works, particularly bus networks and tram lines.
During the post-war era, infrastructure provision was the domain of governments and public debt. Railways were a dominant force in shaping those cities. But as the capitalist model continues to mutate, the private sector has again taken the lead in the financing, management and ownership of public transport infrastructure.
That can backfire when it’s not properly regulated. In The Fifth Estate’s analysis of Sydney and Melbourne’s experiences, we’ve seen developer-led, patchwork pockets of urban densification, planned in isolation for the benefit of individual proponents and not integrated with public transport networks.
This has resulted in more congestion and inevitably, emissions, at a time when we’ve been clearly warned by the Intergovernmental Panel on Climate Change (IPCC) that to rein in global warming will require “rapid, far-reaching and unprecedented changes in all aspects of society”.
Newman is one of the lead authors of the latest IPCC Special Report on Global Warming, released on 8 October, which soberingly warns the earth is almost certainly in for a catastrophic increase of 1.5 degrees centigrade of warming in coming decades.
That report prompted global headlines and consternation but was shrugged off by our federal government. Newman is also the coordinating lead author for the next IPCC report on transport, focusing on the relatively unexamined sources of emissions in aviation, shipping and trucks.
A noted author on transport and the urgent need for the need to abandon cars and move into autonomous public transport, he’s eminently situated to comment on the ways in which such infrastructure can be funded.
We need to urgently abandon fossil fuels
Newman is adamant that unless we move away from fossil fuels we will not meet our targets and avoid catastrophic climate change. He observes that our government, which loathe to recognise the Paris agreement and are a vocal advocate of coal fired power, is not taking this anywhere near seriously enough.
No talk of removing 42 cents per litre for diesel
“Diesel has a rebate of 42 cents per litre,” he told The Fifth Estate. “That’s what the federal government gives you if you use diesel for productive purposes. They talk a lot about removing the few cents they provide for solar, but there’s no talk at all about diesel.”
While he despairs of our government’s intransigence on climate change, Newman is a firm supporter of and once worked for Infrastructure Australia (IA), the independent statutory body providing advice to government and industry on the major projects Australia needs to invest in to maintain sustainable economic growth.
Newman was working with IA until about three years ago, when then-Prime Minister Tony Abbott ousted him. Despite the political interference that has characterised IA’s work (and the formation of a Select Committee into the Abbott Government’s  Budget Cuts), Newman is in no doubt as to the efficacy of the organisation.
“In the first four years when I was involved with IA, [Labor senator] Anthony Albanese took our list to cabinet and the top 14 projects we had recommended were all funded, so it certainly was a powerful statement that IA matters and that the process of getting those infrastructure projects together was not political. We did our work and the economics of them all stacked up.
“For the first four years Queensland got more than the rest of Australia put together. In the first round NSW got none.”
The reason, he says, was that former Prime Minister Kevin Rudd, looked at the state’s submissions and, after IA recommended no approvals, balled them up in a public agenda and said that while transport was managed by 15 different agencies it would not get federal money.
Transport NSW was formed soon after as an integrating body and “began to try and work together instead of (submitting) this series of projects that had not been seen by other parts of their own bureaucracy”.
“West Australia got virtually nothing, because they didn’t submit anything. We had a very right wing government at the time, some of the components and in particular the person who was in charge of Premier and Cabinet, he quite openly said to me and to (chair) Sir Rod Eddington that they believed not in IA but in cocktail party politics on infrastructure. Which meant you waited until a federal politician came to town, you gave them a cocktail party and you got your money and it was too much time and worry to fill in all those forms.”
The Federal investigation into Abbott’s budget cuts morphed into a 2016 Select Committee into the Scrutiny of Government Budget measures, to which Mr Glenn Stevens, governor of the Reserve Bank of Australia, stated:
“The impediments to [good infrastructure planning] are… in our decision-making processes and, it seems, in our inability to find political agreement on how to proceed.”
That committee advised the federal government to “increase its level of borrowing to fund productivity enhancing infrastructure”. It quoted the 2014 Productivity Commission (PC) report, which emphasised that public and private sector investment in economic infrastructure are about on par. The PC report succinctly defines the difference between financing and funding in investment terms.
“Funding refers to how infrastructure is paid for… either taxpayers through government spending or directly by users, such as through electricity charges or road tolls.
“Financing refers to the supply of capital, such as loans and equity, used to pay for the upfront investment costs of an infrastructure project. The sources of funding are then used to pay back the money raised.”
Infrastructure Australia gives advice to Treasury on which major projects should be funded. That’s a complex process in itself.
Newman explains: “We’ve got an Infrastructure and Project Financing Agency (IPFA) which sits alongside IA as a process that you have to use, as well as the technical work you do on benefit costs, rates and the strategic values of any project. It’s a very time-consuming process, but IPFA can recommend ways in which the private sector may be able to help.
Gold Coast light rail is a great success
“They’re still trying to get more money into infrastructure without necessarily having to threaten government’s various credit ratings. Have a look at the Gold Coast light rail project, it was the very first one that had ever been submitted by a local government. The state government didn’t like it, but then when we looked at it we found that the numbers really stacked up, so the state government then had another look.
“When they got behind it, it was federal, state and local funded, a dramatic success story. It’s now carrying three times the number of passengers they thought they’d get.”
Any monolithic institution like IA is going to attract its critics. Chris Hale, a transport expert who contributed to The Fifth Estate’s Brisbane story, says IA’s decisions have been heavily questioned by his peers.
“They backed the North East Link in Melbourne, sight-unseen,” he told The Fifth Estate. “But it’s no worse than many others, including rail projects in NSW which are known to be marginal.
“Everyone knows Sydney does not need an additional airport, but they’re backing it to the hilt, including the rail connection.”
Hale says Lucy Turnbull’s appointment as chair of the Greater Sydney Commission was a “shocking conflict of interest” when her husband Malcolm Turnbull was the prime minister. And the government approved funding for the rail link to the west with IA’s backing.
[At the same time there is much support for the work of the GSC and agreement among leading figures that under Lucy Turnbull it’s doing a good job, especially with the development of transport infrastructure to the area. A big caveat from sustainability minded people is on the mooted intentions to carve deeply into fertile and scarce farming land with development and proposals to raise the walls of Warragamba Dam, seen as at least partly designed to protect future housing in areas that might better be left to farmland – Ed]
The Productivity Commission report noted that major infrastructure projects, Melbourne’s NE Link and the National Broadband Network in particular, have been approved without proper cost-benefit analysis.
And former IA employee John Austen, a previous respondent in this series and a panel member at The Fifth Estate’s Tomorrowland 2018, has along with noted blogger and former high level public servant John Menadue, called for a public enquiry into the workings of Sydney’s Westconnex and Metro projects.
Newman is not convinced there’s good cause for such an inquiry.
“I don’t think there’d be any problem at all having an inquiry into IA,” he says. “They would get very strong support, showing that its work has significantly improved the quality of infrastructure decision making in Australia.”
Rail rediscovered thanks to IA
“The rediscovery of rail as a major potential solver of problems in Australian cities has occurred because IA began to do work that was far more independent,” Newman says.
“Up until then, it was highly political. The Commonwealth government never gave a cent to rail. It was ‘not in your knitting’ as Abbott said, but the nine months he was in control he came back and said ‘I like rail’ and it was possible again.”
Newman says IA “did the numbers” on rail and they found it had an excellent business case and should be funded.
He’s an advocate of the trackless tram model developed by the Chinese CRRC Corporation, which comes in at a fraction of the cost of heavy rail and is privately financed, but can replace light rail, buses and a significant number of cars. And it’s autonomous. It has had its critics, but it’s interesting to note that Germany has also debuted an autonomous tram with the potential to be powered entirely by renewables.
Flexible Microeconomics offers better outcomes than current models of fixed charges
Professor David Hensher, director of Sydney’s Institute of Transport and Logistics Studies, is expansive on the role microeconomics should take in financing infrastructure. He says that road pricing is the most effective method of funding and regulating road usage.
“In Australia, notably Sydney, we have more toll road kilometres than anywhere else in the world, so the question is, is that really working for us? Have we got the model right and are we getting good value for the dollar when we build these roads as public private partnerships (PPP)?” Hensher says.
“The PPP model has turned out to be problematic, simply because there was a deal done at the very beginning to set the toll price, which was then indexed and consequently in Sydney in particular the government’s now lost control of the network to Transurban, who have most of the contracts.
“What we should have been doing is to move away from the current model to what’s known as an availability payments model, where you start off with a government debt and allow equity from the private sector to become involved when the patronage risk is known with greater certainty.”
What’s more fundamental is road pricing reform, he says.
Instead of our conventional methods of fixed charges, such as registration, we should move towards variable charges that relate more to a distance-based charging regime.
Politicians will follow community demand
“We need to do that in order to get buy-in from the community, which is the only way we’re going to get buy-in from the politicians,” Hensher says.
“Instead of having a congestion charge, which is hiking an additional charge on top of what people already pay, we start from scratch, reduce the registration charge and introduce a five cents per kilometre charge in the peaks.
“The net impact of this is that nearly everybody will be financially no worse off. That’s really important. What’s equally important is if our model were implemented we estimate it would reduce peak period traffic by about seven per cent, which is equivalent to school holidays.”
Under this model a charge of six cents a kilometre would be enough each year to compensate the toll road companies for their revenue, he says.
The challenge of the electric car revolution
Professor Graham Currie of the Public Transport Research Group at Monash University agrees that the biggest problem in cities is single occupancy cars, with the added hazard of the electric car revolution.
“What we need is a funding model that will help us out of this problem. At the moment we fund our transport system through fuel tax and that goes to roads. But we’re about to have a shock to the system. Australia will go electric. All the cars we’ll be buying will be electric so we’ll have no choice.
“At the moment if you’re in an electric vehicle you don’t pay fuel tax, so that means if you buy a million dollar Tesla you don’t have to pay fuel tax, so we’re currently subsidising extremely rich people to drive electric cars. But in the future more people will be doing that, so we’ll be subsidising everyone and there won’t be any money to look after roads.
“On the toll road issue governments have struggled to find finance because of the flawed funding model. These toll roads people are really clever. They’ve got a business model that really caters to this, that tells governments they can have a solution to their problem and won’t have to pay for it, just give them the road and they’ll provide the money.
“It’s a commercial model that works and governments love to buy it. The problem is that they’re selling our future. We need to be cleverer than that.”
Hensher says that the user pays model can also be applied to rail financing.
He says all transport is underpriced in urban areas with huge subsidies going into rail and bus.
This will be difficult to change politically because of arguments about equity. “While it doesn’t cost much to use your car we’re going to have to keep the fares low; as a result the equity argument tends to win over the efficiency argument”.
Electric vehicles and “clean” diesel
Work Hensher’s taken part in on the full life cycle aspects of rail versus bus in cities, and the current sources of electricity versus “clean” diesel, the result has come out “pretty evenly” on emissions.
“If we could get the electricity generated from clean fuel sources it’d kill it, but you can do that with electric buses as well.”
The challenge is scalability and ideally he’d make buses first to switch electric fuel sources.
He thinks it will be 20 years before there is a substantial number of autonomous cars on the road, “but if we’re not careful and they stay in private hands then congestion will get worse. “
We need a sharing culture like Uber that’s priced appropriately.
Trains really need to be first
“One of my concerns is, despite what the technology guys say, we’ve got to be really careful how we manage this transition, so we don’t end up with more congestion on the roads. Trains still need to be the dominant form on transport in the big cities, otherwise we’ll have a problem with the way our cities are run.”
“Light rail in Sydney is an absolute disaster, we should have been considering trackless trams, for which you don’t need to dig up the roads, are a quarter of the price and will do the job just as well.”
How value capture can work
Newman says the value capture method of financing is “more or less controlled by government” and is “a process where you put a fund aside suitable for a rail project, for example, that has land development in it.
“You hypothecate the money that comes in from that land value uplift and it goes into that fund and so over the years it builds back up again and pays itself off. “
In the US it’s called tax increment financing, he says.
In Australia, Newman says, “We like the value creation model where the developer works with a superannuation company or something to get their finance. The business case for the trackless tram would be then, you get a better value out of the project and therefore you can afford to put the contribution into that trackless tram.”
Other forms of financing
Among the many forms of finance, including land tax, local government rates, direct user pays, and road pricing, Public-private partnerships (PPP) are becoming increasingly indispensable to infrastructure finance.
The Productivity Commission report estimates that in Australia, public non-financial corporations own about half the public infrastructure and private non-financial corporations own the other half.
Newman also cites Green Bonds as significant. These are heavily endorsed by the Select Committee, of which Greens Senator Peter Whish-Wilson is chair.
An article in The Fifth Estate story on Green Bonds observed that Australia is emerging as “an example of world’s best practice” in developing a home-grown green bond market.
Growth in the $50 billion global green bonds market is predicted to hit up to 50 per cent a year and they’re behind investment in 30 major renewable energy infrastructure projects across Australia.
That kind of innovation has been a primary driver in sustainable development around the world. Professor Graham Currie notes that governments need to take bold initiatives in order to meet the IPCC’s emissions targets – a drop of 58 per cent from 2015 totals by 2030, to limit warming to 1.5 degrees.
“The Netherlands weren’t historically a cycling country,” he said. “They made a decision in the 1970s that they wanted to become a cycling country. I doubt whether Australia would follow that, but in the inner areas it’s progressive and as long as it’s well managed and designed, the outcomes are very positive but inexpensive compared to freeways.”
Newman is optimistic about the changes in infrastructure thinking already underway around the world and even in Australia. At a recent IPCC presentation in Perth he gave a talk that was hopeful and positive.
“The world is well on track to achieve a significant step forward,” he says.
“There are some sectors that need to shape up, but changes are underway. Cities are rapidly getting rid of oil and coal in their functions and that is leading the way.
“The technologies of change are so quick, disruptive and very much harder to model but some are happening far quicker than we thought possible, so Perth now has 30 per cent of households with rooftop solar – that’s the biggest power station in WA. That happened without a government program and it’s working really well.
“The trackless tram is a definitive example. Every city wants better public transport, but it’s all been about government having to pay for it and them trying to get out of paying for it. The basis of value capture is private sector funding to build around the transport, which raises the value of the land, and an entire public transport system can be paid for by those developments.”