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Evaluating infrastructure

priorities and economic contribution

Presentation to the Economic Society Sydney

12 July 2006

2

Study’s objectives

Identify where opportunities to invest in state significant, economic infrastructure exist

Indicate priorities among the infrastructure needs

Demonstrate approach to investment prioritisation

Illustrate expected returns from investment

3

Overview of the process

Input from GHD

Consultation with PCA members and other stakeholders

Set the macro storyWhat has NSW been doing?

1.

Stakeholder consultations to test the priority list

4.

Prioritise projects to identify top 20 infrastructure needs

3.

Identify what hard (economic) infrastructure is needed

2.

Estimate the boost that the top 20 projects can deliver to NSW economy

5.

Prepare report6.

Multi-criteria analysis (establish criteria, weights and score projects)

GE model to assess economic impacts

4

2: Infrastructure dynamics

Funds committed to capital investment (private & public) is growing; as a share of the economy’s resources, it’s falling – private sector plays an increasingly important role– NSW Govn’t plans to increase spending over

current budget forecast

NSW has shortfalls in physical infrastructure & governance – current planning arrangements do not give private

sector enough information for it to play the increasingly important & expected role in infrastructure provision and financing

5

Capital Expenditure by the NSW public sector (nominal)

0

2,000

4,000

6,000

8,000

10,000

12,000

97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09

$m

PTE capital expenditure

Total capital expenditure

General governmentcapital expenditure

6

NSW General government capital expenditure

0

0.5

1

1.5

2

2.5

96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05

% o

f GSP

(rea

l ter

ms)

Budget

Actual

7

Infrastructure report card results

Infrastructure Type Aus NSW Qld Vic SA NT WA TAS ACT

Category Sub-category

Roads National C+ C+ C+ C C B- B- B

State C C+ C C- C- C- B- C

Local C- C- C C- D C- C+ D+

Overall C C C C- C- C B- C B

Rail C- D C+ C- C A C+

Electricity C+ B D+ C B- B- B- B- B

Gas C+ C C B+ A B+ A-

Ports C+ B- C B+ B- B

Water Wastewater C+ C- C+ B C C B- D+ B

Potable water B- C B B C+ B- B- D+ C

Stormwater C- D C C- D C+ C+ C- C

Irrigation C- C+ D B C+ D

Overall C C+ B- C- C+ C+ C+

Airports B B B+ B

Overall Rating C+ C- C+ C C B B- C- B-

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3: Investment opportunities

Identified projects of state significance ($100m+)

Key findings:– around 60 unfunded projects of state significance

were identified– projects tended to address infrastructure needs in

the Sydney metropolitan areas– projects tend to play catch up to compensate for

past under-investment– transport (freight & passenger) had the greatest

number of identified projects

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4: Setting priorities

Used MCA to identify top 20 priority projects

Key findings:– funded projects tended to rank highly among the

priorities– high priority, unfunded projects largely respond to

passenger transport needs– top 20 projects tend to be very robust - ranking

well regardless of how criteria are weighted

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4: Setting priorities - MCA

Criteria To what extent does the project…

Economic

Bottlenecks reduce congestions to existing services?

The criterion also considers availability of substitutes, the size of the sector, etc, and has a temporal element, emphasising current or immediate needs.

Gaps provide missing services or services anticipated to be missing in the near- to medium-term future?

Competitiveness provide services to industry in NSW that are at a lower cost or raises efficiency?

Affordability reduce costs for households or consumers, ie, balancing possible charges with savings from use?

Employment assist in creating new jobs (or prevent the anticipated loss of jobs)?

Social

Safety change the risk of loss of life or threats to well-being (eg, reduces road accidents)?

Social cohesion connect, or raise opportunities to connect, people and communities?

Community view have (on balance) the likely support of affected communities?

Environment

Environmental footprint

reduce environmental/ecological damage (eg, reduce point source pollution, minimise impact on critical habitats)?

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4: Setting priorities - MCACriteria To what extent does the project…

Strategic

New opportunities enable existing or future economic opportunities (eg, support targeted employment growth areas)?

Regional development

assist regions of particular significance in generating economic opportunities or jobs?

Risk have less risk relative to projects of a similar nature?

The criterion also considers the project’s expected utilisation or likelihood of delivering the desired outcomes.

Governance

Planning consistency align with relevant regional plan(s)?

This criterion gave particular weight to the projects consistency or complementarity with the Sydney metropolitan strategy.

Performance review have arrangements in-place to provide for adequate and/or independent assessment of its outcomes?

Delivery have an efficient/effective whole of life provider (eg, build plus operation and maintenance) already in place or clearly defined?

Funding pathway have an established or available cost-recovery (eg, user charge) system in-place?

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Triple bottom line

Infrastructuresector

Rankings of projects - ‘top 10’

Economic focus

4610Electricity distribution upgrades to include Parramatta CBDEnergy

13139Sydney water recycling projectsWater & sewerage

11128Harbour rail link (Eveleigh to Chatswood)Passenger rail

12117Western Sydney bus transitwaysBuses

226Pacific highway upgradesRoads

775M4 East and M4 to Botany TunnelRoads

644Peak load electricity generator (gas fired)Energy

333Southern Sydney freight lineFreight rail

552NW Rail link (Cheltenham to Rouse Hill)Passenger rail

111Sydney Port intermodal freight networkIntermodal freight Project name

Unadjusted

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Rankings of projects - ‘2nd 10’

Infrastructure sector Project name Economic focus

Unadjusted Triple bottom line

Roads F3 to M2 Connection 11 9 9

Energy Mount Piper Baseload Electricity Generator Upgrade

12 8 8

Freight rail Rail Tunnel to improve Newcastle Port link to North West (Liverpool Range Freight Rail Tunnel)

13 10 10

Passenger rail Parramatta to Sydney High Speed Rail Link 14 15 16

Freight rail Inland Rail Freight Route Link (Brisbane - Sydney - Melbourne)

15 16 14

Passenger rail Parramatta Rail Link Section 2 (Epping-Parramatta)

16 18 20

Light rail CBD Light Rail Loop 17 19 19

Light rail Inner Sydney Light Rail System 18 17 18

Water and sewerage Southern and Western Suburbs Ocean Outfall Sewer

19 14 15

Passenger rail Sydney to Warnervale High Speed Passenger and Rail Link

20 23 22

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Project scores

0

10

20

30

40

50

60

70

0 5000 10000 15000 20000 25000 30000 35000

Cumulative cost ($m)

Scor

e

1 2 4

5

6

73

8

9

10 11 12

13

14 15

16 17

18

19

20

PCA

1. Sydney Port Intermodal Freight Network

2. NW Rail Link (Cheltenham-Rouse Hill)

3. Southern Sydney Freight Line

4. Peak Load Electricity Generator (gas fired)

5. M4 East & M4 to Botany Tunnel

6. Pacific Highway Upgrades

7. Western Sydney Bus Transitways

8. Harbour Rail Link (Eveleigh-Chatswood)

9. Sydney Water Recycling Projects

10. Electricity Distribution Upgrades to include Parramatta CBD

11. F3 to M2 Connection

12. Mount Piper Baseload Electricity Generator Upgrade

13. Rail Tunnel to improve Newcastle Port link to North West (Liverpool Range Freight Rail Tunnel)

14. Parramatta to Sydney High Speed Rail Link

15. Inland Rail Freight Route Link (Brisbane - Sydney - Melbourne)

16. Parramatta Rail Link Section 2 (Epping - Parramatta)

17. CBD Light Rail Loop

18. Inner Sydney Light Rail System

19. Southern and Western Suburbs Ocean Outfall Sewer

20. Sydney to Warnervale High Speed Passenger and Rail Link

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4: Setting priorities

Key messages:– prioritisation can be undertaken in a manner that

is consistent with both stakeholder and state goals– highest priority projects generally meet triple

bottom line and strategic criteria– transparent process enhances understanding of

what tradeoffs are necessitated by prioritising investment

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5: Contribution to growth

GE modeling to estimate how 20 highest priority projects could impact on the NSW economy

Key findings– impact on NSW economy– regional implications– performance of individual projects (top 10)– effects of a second investment (2nd 10)

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TERM

A CGE model of the Australian economy

Up to 166 sectors

Up to 57 regions (ABS statistical divisions)

CGE and benefit cost analysis– direct effects– indirect effects– full accounting of opportunity costs

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NSW impacts of 10 priority projects

-20

0

20

40

60

80

100

120

140

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

%

Year

Cumulative impact of an infrastructure investment

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NSW impacts of 10 priority projects

-2.72Consumer price index

1.01Aggregate capital stock

-0.19Imports price index

-1.58Export price index

1.79Import volumes – landed

1.75Import volumes – used

9.10Export volumes

0.73Real investment

0.51Population

0.90Real wages

1.55Employment

1.85Household consumption

2.89Real GSP

%

NSW (average annual % change)Indicator

Investment of $18.5 billion infrastructure could produce the following benefits:

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Regional impacts of 10 priority projects

Regional NSW benefits from improvements to infrastructure services

-4

-3

-2

-1

0

1

2

3

4

-4 -3 -2 -1 0 1 2 3 4

% change consumer prices (x ax is)

% c

hang

e ho

useh

old

cons

umpt

ion

(y a

xis)

NSW Regions Other States

-4

-3

-2

-1

0

1

2

3

4

-4 -3 -2 -1 0 1 2 3 4

% change real GSP (x ax is)

% c

hang

e em

ploy

men

t (y

axis

)

NSW Regions Other States

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Sydney Port Intermodal Freight Link

Indicators NSW VIC QLD SA WA TAS NT ACT

Real GSP 0.36 -0.04 -0.04 -0.02 0.18 0.03 0.30 0.07

Employment 0.19 -0.05 -0.05 -0.03 0.13 -0.01 0.23 0.03

Average real wage 0.15 0.03 0.04 0.03 0.12 0.06 0.18 0.11

Export volume 2.82 -0.25 -0.53 -0.24 -0.74 -0.92 -0.78 -0.15

Import volume 0.51 -0.03 -0.04 0.01 0.28 0.07 0.46 0.10

CPI 0.08 0.02 0.02 0.02 0.09 0.02 0.04 -0.02

Population 0.08 -0.06 -0.05 -0.06 0.03 -0.03 0.10 0.03

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Sydney Port Intermodal Freight Link

Far WestMurrayMurrum-

bidgeeSouth

East

Central West NSW

North West NSW

Northern NSW

Mid North Coast

Richmond TweedIllawarraHunterSydneyIndicators

0.160.020.040.030.060.070.050.03-0.020.100.120.08Population

0.200.050.040.020.030.100.070.01-0.010.130.120.08CPI

1.040.320.290.330.420.630.430.250.160.700.720.50Import volume

-0.74-0.26-0.25-0.17-0.27-0.52-0.38-0.19-0.060.612.043.33Export volume

0.310.100.110.110.130.190.130.110.070.180.200.16Average real wage

0.440.120.130.100.160.270.160.090.020.270.290.19Aggregate

0.770.230.240.190.450.520.270.190.100.610.730.31Real GDP

employment

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Economic impacts of additional investment in infrastructure

Second investment of $11 billion would further stimulate the economy

0 1 2 3 4 5 6 7 8 9 10

Real GSP

Real household consumption

Aggregate employ ment

Av erage real w ages

Population

Real inv estment

Aggregate capital stock

Ex port v olumes

Import v olumes (used)

Average annual % change

Top 10 priority projects

2nd 10 priority projects

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Permanent growth

today 1 2 3 4 5 6 7 8 9 10

Additional infrastructure impact ($bn constant prices)net impact 0 8.9 9.2 9.5 9.8 10.1 10.4 10.7 11.0 11.3 11.7

GSP ($bn constant prices)Without additional infrastructure investment 300 309 318 328 338 348 358 369 380 391 403With additional infrastructure investment 300 318 327 337 347 358 369 380 391 403 415

Growth rates (%)Without additional infrastructure investment na 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03With additional infrastructure investment na 0.06 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03Difference in growth rate 0.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

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5: Conclusion

NSW would become more competitive, attracting population, jobs, and investment– GSP increase by 3%, about $8.8 billion annually– employment increase by 1.6%, additional 50,300

jobs in today’s workforce– household consumption would rise by 1.9%– export volumes would increase by around 9%– CPI would fall by 2.7%– NSW population increase by 0.5%, about 37,000

additional residents based on today’s population– all 12 regions in NSW would benefit

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For economists...

Pre-screening projects:– assists with priority identification– focus effort on obtaining greater returns– could raise transparency and certainty– is practical

Economy wide evaluation may assist in– comprehensive evaluation– accounting for flow-on implications– assessing regional impacts– forming stronger views about value for money

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Full Paper Building Wealth through infrastructure

For the Property Council of Australia

Available from: www.TheCIE.com.au

Presentation by Kerry Barwise

Centre for International Economics

Telephone: 02 9250 0800

Fax: 02 9250 0888

Email: kbarwise@thecie.com.au