Preparation of Submissions to Infrastructure Australia

Mende Gorgievski

Principal Consultant, GHD Economics and Strategy

South East Australian Transport Strategy Inc. (SEATS)

25 November 2011

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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

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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

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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

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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

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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

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Preparing submissions to IA

Based on the Reform and Investment Framework Template, Oct 2010

7 stage process

Stage 1 Goal Definition

Stage 2 Problem Identification

Stage 3 Problem Assessment

Stage 4 Problem Analysis

Stage 5 Options Generation

Stage 6 Options Assessment

Stage 7 Solution Prioritisation

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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)

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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)

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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

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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”

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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

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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

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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

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

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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

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