PUBLIC ACCOUNTS COMMITTEE
INQUIRY INTO FUNDING ARRANGEMENTS FOR WESTERN AUSTRALIAN INFRASTRUCTURE PROJECTS
Report No. 9 in the 37th Parliament
2008
Published by the Legislative Assembly, Parliament of Western Australia, Perth, May 2008.
Printed by the Government Printer, State Law Publisher, Western Australia.
Public Accounts Committee
Inquiry into Funding Arrangements for Western Australian Infrastructure Projects
ISBN: 978-1-921355-34-9
(Series: Western Australia. Parliament. Legislative Assembly. Committees. Public Accounts Committee. Report 9)
328.365
8355-1
Copies available from: State Law Publisher 10 William Street PERTH WA 6000
Telephone: (08) 9321 7688 Facsimile: (08) 9321 7536 Email: [email protected] Copies available on-line: www.parliament.wa.gov.au
PUBLIC ACCOUNTS COMMITTEE
INQUIRY INTO FUNDING ARRANGEMENTS FOR WESTERN AUSTRALIAN INFRASTRUCTURE PROJECTS
Report No. 9
Presented by: Dr S.C. Thomas, MLA Laid on the Table of the Legislative Assembly on 15 May 2008
PUBLIC ACCOUNTS COMMITTEE
COMMITTEE MEMBERS
Chairman Mr J.R. Quigley, MLA Member for Mindarie
Deputy Chairman Dr S.C. Thomas, MLA Member for Capel
Members Mr D.T. Redman, MLA Member for Stirling
Mr P.B. Watson, MLA Member for Albany
Mr B.S. Wyatt, MLA Member for Victoria Park
COMMITTEE STAFF
Principal Research Officer Ms Katherine Galvin, BSW (From 7.4.08) Dr Julia Lawrinson, BA (Hons), Grad Dip Ed, PhD (From 23.7.07 to 4.4.08) Ms Liz Kerr, BA, PG Dip Pol St (Until 5.6.07) Research Officer Ms Dawn Dickinson, BSc (Hons), MURP
COMMITTEE ADDRESS
Public Accounts Committee Legislative Assembly Tel: (08) 9222 7494 Parliament House Fax: (08) 9222 7804 Harvest Terrace Email: [email protected] PERTH WA 6000 Website: www.parliament.wa.gov.au
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PUBLIC ACCOUNTS COMMITTEE
TABLE OF CONTENTS
COMMITTEE MEMBERS ...... i COMMITTEE STAFF...... i COMMITTEE ADDRESS ...... i COMMITTEE’S FUNCTIONS AND POWERS...... v INQUIRY TERMS OF REFERENCE ...... vii CHAIRMAN’S FOREWORD...... ix ABBREVIATIONS AND ACRONYMS ...... xiii GLOSSARY ...... xvii EXECUTIVE SUMMARY ...... xix FINDINGS...... xxix RECOMMENDATIONS...... xxxvii MINISTERIAL RESPONSE...... xli CHAPTER 1 INTRODUCTION...... 1 1.1 BACKGROUND...... 1 1.2 CONDUCT OF THE INQUIRY ...... 3 1.3 SCOPE OF THE INQUIRY ...... 3 1.4 SUBMISSIONS AND EVIDENCE ...... 4 CHAPTER 2 FACTORS AND ARRANGEMENTS IMPACTING ON INFRASTRUCTURE FUNDING. 7 2.1 INTRODUCTION...... 7 2.2 AGREEMENTS AND LEGISLATION...... 7 (a) Offshore petroleum developments ...... 7 (b) Land-based mineral developments...... 9 2.3 ROLE AND PRIORITIES OF AGENCIES IN PROVIDING OR FACILITATING INFRASTRUCTURE FUNDING ...... 10 (a) Federal...... 10 (b) State...... 12 (c) Local governments...... 14 CHAPTER 3 CURRENT FUNDING ARRANGEMENTS FOR INFRASTRUCTURE PROJECTS ...... 17 3.1 RAVENSTHORPE NICKEL PROJECT ...... 17 3.2 GORGON GAS PROJECT ...... 24 3.3 BURRUP FERTILISERS...... 28 3.4 BURRUP GAS PROCESSING DEVELOPMENTS ...... 32 3.5 BROWSE BASIN GAS AND CONDENSATE PROJECTS...... 38 3.6 PILBARA IRON ORE AND INFRASTRUCTURE PROJECT...... 45 3.7 SUMMARY ...... 50 CHAPTER 4 THE ADEQUACY OF FUNDING ARRANGEMENTS ...... 53 4.1 ISSUES EMERGING FROM EVIDENCE PRESENTED TO THE COMMITTEE...... 53 (a) The disadvantage faced by regional areas...... 53 (b) Insufficient consideration of ‘soft’ infrastructure...... 56 (c) The lack of coordination between levels of government...... 60 (d) The unfair cost burden on local government in the provision of infrastructure and maintenance of infrastructure provided by third parties...... 65 (e) Federal government investment ...... 68 (f) State government planning, investment and coordination...... 76 CHAPTER 5 STRATEGIES FOR IMPROVING FUNDING ARRANGEMENTS FOR WESTERN AUSTRALIAN INFRASTRUCTURE PROJECTS...... 85 5.1 MECHANISMS FOR INCREASING WESTERN AUSTRALIA’S SHARE OF FEDERAL FUNDING ...... 85 (a) Reforming federal-state financial relations ...... 85 (b) Negotiating favourable terms for revenues from offshore projects...... 89 (c) Re-examining tied funding to the state in the area of infrastructure provision, particularly
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in relation to AusLink ...... 93 5.2 IMPROVING EFFICIENCY OF FEDERAL GOVERNMENT PROCESSES...... 96 (a) Creation of a federal infrastructure strategy and fund/s...... 96 (b) The Canadian model ...... 98 5.3 IMPROVING THE EFFICIENCY OF STATE GOVERNMENT PROCESSES...... 102 (a) Creating plans for major infrastructure provision overseen by a Coordinator General...... 103 (b) Coordinator General...... 103 (c) SEQ Regional Plan and SEQ Infrastructure Plan...... 110 (d) Applicability of the Queensland model to Western Australia...... 113 (e) Dedicated state infrastructure fund ...... 118 5.4 ASSISTING LOCAL GOVERNMENTS ...... 123 (a) Improving the efficiency of infrastructure funding processes...... 125 (b) Increasing the ability of local governments to fund infrastructure...... 131 5.5 ENGAGING THE PRIVATE SECTOR ...... 141 (a) Potential for private sector engagement in infrastructure in Western Australia...... 142 (b) Mechanisms to increase private sector investment in infrastructure...... 144 (c) Other factors influencing private sector engagement...... 150 APPENDIX ONE...... 157 BRIEFINGS HELD...... 157 APPENDIX TWO...... 161 WITNESSES TO HEARINGS HELD ...... 161 APPENDIX THREE...... 165 SUBMISSIONS RECEIVED ...... 165 APPENDIX FOUR ...... 167 LEGISLATION...... 167 APPENDIX FIVE...... 169 INFRASTRUCTURE-RELATED COMMITTEES LISTED BY THE DEPARTMENT FOR PLANNING AND INFRASTRUCTURE...... 169 APPENDIX SIX ...... 173 DEPARTMENT OF TREASURY AND FINANCE SUBMISSION ...... 173 APPENDIX SEVEN ...... 187 THE ENVIRONMENTAL IMPACT STATEMENT (EIS) PROCESS IN QUEENSLAND...... 187
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COMMITTEE’S FUNCTIONS AND POWERS
The Public Accounts Committee (‘the Committee’) inquires into and reports to the Legislative Assembly on any proposal, matter or thing it considers necessary, connected with the receipt and expenditure of public moneys, including moneys allocated under the annual Appropriation bills and Loan Fund. Standing Order 286 of the Legislative Assembly states that:
The Committee may -
1 Examine the financial affairs and accounts of government agencies of the State which includes any statutory board, commission, authority, committee, or trust established or appointed pursuant to any rule, regulation, by-law, order, order in Council, proclamation, ministerial direction or any other like means.
2 Inquire into and report to the Assembly on any question which -
(a) it deems necessary to investigate;
(b) is referred to it by resolution of the Assembly;
(c) is referred to it by a Minister; or
(d) is referred to it by the Auditor General.
3 Consider any papers on public expenditure presented to the Assembly and such of the expenditure as it sees fit to examine.
4 Consider whether the objectives of public expenditure are being achieved, or may be achieved more economically.
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PUBLIC ACCOUNTS COMMITTEE
INQUIRY TERMS OF REFERENCE
On 1 November 2006, the Public Accounts Committee resolved to conduct an Inquiry into the funding arrangements for selected major infrastructure projects in Western Australia. The Committee adopted the following Terms of Reference.
The Public Accounts Committee will examine and report on:
1. The funding arrangements, including State and Federal agreements, of selected major infrastructure projects and proposed projects in Western Australia;
2. The adequacy of those arrangements in meeting the needs of the State, in particular its rapidly expanding resource sector;
3. The level of Federal and State investment in and control over major infrastructure projects and the long term impacts of those levels;
4. Changes or mechanisms that would enhance infrastructure funding outcomes for the State; and
5. Other matters deemed relevant by the Committee.
The Committee will report its findings to the Legislative Assembly by 1 June 2008.
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PUBLIC ACCOUNTS COMMITTEE
CHAIRMAN’S FOREWORD
I am pleased to present to the Legislative Assembly the ninth report of the Public Accounts Committee of the Thirty-Seventh Parliament. This report finalises the Committee’s Inquiry into Funding Arrangements for Western Australian Infrastructure Projects commenced on 1 November 2006. The Report comprehensively covers the five terms of reference adopted for the Inquiry.
Western Australia and the nation at large have benefited significantly in recent years from the state’s booming economy, based largely on commodity prices that have ‘sent profits rocketing and encouraged resource and other business to invest’.1 This ‘boom’ is likely to continue until a downturn in commodity prices. In a paper released in March 2007 to ‘facilitate discussion of the key issues surrounding the provision of infrastructure in Western Australia, particularly in relation to the State’s rapidly expanding resource sector’, the Committee noted that for the financial year 2005-2006, Australia’s mineral exports were valued at $92 billion. This accounted for 76 per cent of total commodity exports, 60 per cent of total merchandise exports and 47 per cent of total exports of goods and services. In 2006, Access Economics reported that Western Australia accounted for a third of Australian export volumes with a likely increase in share. This increase has been realised with the resource sector in this state now creating about 80 per cent of merchandise exports with mining responsible for 3.4 per cent of the state’s 2006-2007 growth rate of 6.3 per cent.
The economic upturn and the requirement for major project-related infrastructure has, and continues to have, considerable financial and planning implications for state government, local government authorities and resource companies. This has required a high-level of cooperation, planning and investment to date. The Committee notes that on occasion resource companies have exceeded the requirements of related project agreements to progress social infrastructure and services and the Committee commends those companies on their level of community investment.
That said, the public sector is the principal provider of infrastructure nationally with the states generally responsible for ports, rail, roads, gas, electricity and water and the commonwealth government for services such as postal facilities, telecommunications and air transport. There is however significant disparity in revenue received by the commonwealth versus the state, and commonwealth investment in infrastructure to support major resource projects. In the 2006-2007 Budget Papers, the Department of Treasury and Finance cited that although the commonwealth government receives the majority of fiscal return from the state’s major resource projects via various taxes, with a large proportion of the revenue redistributed to other states via grants, the commonwealth makes minimal contribution to infrastructure and related support services. The Department also reported in a 2006 discussion paper on federal-state relations that deficiencies in the federal system were holding back development in this state, impacting on national economic outcomes. It was suggested that increased flexibility and collaboration between the commonwealth and state could ‘lock in’ current economic gains for future generations and further,
1 Access Economics, Business Outlook, September Quarter 2006, p105.
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that the state would be open to higher levels of investment in infrastructure were there equity in financial and other related arrangements between the Western Australian and federal governments.
It is in this context that the Committee resolved to examine the most appropriate arrangements for facilitating state and national economic growth, whilst ensuring a fair and more equitable share of the cost burden between the state and commonwealth for major infrastructure projects.
Evidence to the Inquiry and the Committee’s review of six major resource projects in various regions of the state confirmed an imbalance in costs/benefits to the state compared to the commonwealth for projects of national significance wherein major revenues accrue to the federal government, despite the majority of costs for publicly funded infrastructure being borne by the state. Regional areas appear particularly affected by social infrastructure inadequacies, which are often exacerbated by rapid industrial development, and serve to highlight the importance of planning for both social and economic infrastructure.
The Committee considers that the method of federal funding to date, in particular the lack of flexibility inherent in the process, has been problematic. Commonwealth Specific Purpose Payments, restrict this state’s ability to apply funds to areas determined by the Western Australian Government as areas of strategic, economic or social importance and generally require a state contribution, thereby limiting the application of those funds to priority areas. AusLink for example fails to adequately cater for Western Australia’s freight task, in terms of road infrastructure requirements and access challenges associated with regional ports.
The Committee views that the fiscal imbalance can in part be addressed by a revenue sharing arrangement between the state and commonwealth governments in relation to offshore developments such as the Gorgon and Pluto projects in the northwest. It also views that there is an urgent need for review of federal funding programs such as AusLink to better accommodate the state’s freight task.
The Committee is also of the view that if this state is to maximise economic growth from the resources boom, it needs to be competitive on the international market. Some countries are establishing dedicated industrial sites with common-user infrastructure for this purpose. Government needs to give consideration to the funding for, and the timely release of, land for economic and social infrastructure to encourage investment.
Recent federal government initiatives, for example the creation of Infrastructure Australia, may address some of the deficiencies in state-federal arrangements for infrastructure funding, however, the Committee acknowledges that it is too early to assess the effectiveness of these measures. The Committee has identified scope for the state government to encourage the federal government to investigate the applicability of the Infrastructure Canada Model and its funding arm, Building Canada in order to improve coordination, planning and funding of infrastructure in Australia.
Although there has been some progress at the state level in terms of improving processes for infrastructure provision, the Committee considers that there are opportunities for the state government to enhance the coordination, planning and provision of infrastructure. The Committee is aware that the impending State Infrastructure Strategy may go some way to addressing infrastructure planning issues but is concerned that it may not provide the coordination necessary
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to ensure the timely delivery of infrastructure. The Committee views that the Queensland Office of the Coordinator General is a valuable model that merits investigation, as an equivalent in this state could potentially provide the coordinated approach and common decision-making framework for infrastructure delivery that is currently lacking. The Committee has referenced the State Infrastructure Strategy with an understanding of its objectives but without a detailed knowledge of its specifics since the Strategy is yet to be released. Given that the Strategy is proposed for release in mid-2008, the Committee recommends that this Report be considered by the Western Australian Government as complementary to that Strategy.
Local governments are under increasing pressure to build, operate and maintain economic and social infrastructure with inadequate levels of funding. Greater fiscal incentives are needed to enable local governments to effectively meet this mandate. This may be progressed in part as a result of the current review by the Department of Industry and Resources of rate concessions under State Agreement Acts that govern some resource projects. The Committee believes that there may also be merit in establishing an advisory mechanism to assist local governments with the funding and delivery of infrastructure in this state. The Queensland LG Infrastructure Services model undertakes such a mandate and has resulted in enormous cost savings to local government in that state. The Committee sees value in investigating further the applicability of an equivalent body in Western Australia.
Finally, the Committee views that opportunity exists for greater private sector engagement in infrastructure provision in this state although acknowledges that there is no one-size-fits-all approach and different models may be applied to suit different situations. The Committee also recognises that there are various factors that influence private sector engagement including the taxation regime as well as the regulatory environment. A clear definition of responsibilities and also effective coordination and consultation between all affected parties are critical to the success of any partnership approach relating to the provision of infrastructure.
I would like to thank the stakeholders who contributed to this Inquiry, notably industry, local government authorities, and state and federal government agencies and representatives for their frank and detailed commentary on relevant issues, and the Members of the Committee for their thorough consideration of the pertinent matters.
The legislative, regulatory and funding arrangements that underpin infrastructure provision at the state and commonwealth level are highly complex in nature. This Report reflects a balanced view of stakeholder input to the Inquiry, appropriately examines the interplay between the various arrangements that govern infrastructure provision and provides considered recommendations to Parliament. In this regard, I recognise the invaluable contribution of Dr Julia Lawrinson, former Principal Research Officer for the Committee and Ms Dawn Dickinson, Research Officer for their overall analysis of pertinent issues and written contribution to the Inquiry and to Ms Katherine Galvin, Principal Research Officer for her editing of the report.
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PUBLIC ACCOUNTS COMMITTEE
ABBREVIATIONS AND ACRONYMS
“ABS” Australian Bureau of Statistics
“ACC” Area Consultative Committee
“ALGA” Australian Local Government Association
“ALP” Australian Labor Party
“APPEA” Australian Petroleum Production and Exploration Association
“BCF” Building Canada Fund
“BFPL” Burrup Fertilisers Pty Ltd
“BOO” Build Own and Operate
“BOOT” Build Own Operate and Transfer
“CAN” Canadian
“CC” Communities Component
“CCI” Chamber of Commerce and Industry Western Australia
“CEO” Chief Executive Officer
“CGC” Commonwealth Grants Commission
“CIPRAP” Capital Investment Prioritisation and Resource Allocation Process
“CME” Chamber of Minerals and Energy Western Australia
“COAG” Council of Australian Governments
“Cth” Commonwealth
“DEC” Department of Environment and Conservation
“DLGRD” Department of Local Government and Regional Development
“DoIR” Department of Industry and Resources
“domgas” domestic gas
“DPC” Department of the Premier and Cabinet
“DPI” Department for Planning and Infrastructure
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“DTF” Department of Treasury and Finance
“EIS” Environmental Impact Statement
“EP Act” Environmental Protection Act 1986 (WA)
“EPBC Act” Environment Protection and Biodiversity Conservation Act 1999 (Cth)
“ERA” Economic Regulation Authority
“FIFO” Fly-in/Fly-out
“FMG” Fortescue Metals Group
“FTE” Full-time equivalent
“GEACC” Goldfields Esperance Area Consultative Committee
“GEDC” Goldfields Esperance Development Commission
“GSDC” Great Southern Development Commission
“GST” Goods and Services Tax
“GTF” Gas Tax Fund
“HFE” Horizontal Fiscal Equalisation
“IAIG” Inter-Agency Implementation Group
“ICC” Infrastructure Coordinating Committee
“IIDF” Industry Infrastructure Development Fund
“IPAS” Integrated Project Approvals System
“LNG” Liquefied Natural Gas
“MDP” Metropolitan Development Program
“MIC” Major Infrastructure Component
“MLA” Member of the Legislative Assembly
“MLC” Member of the Legislative Council
“MOF” Materials Offloading Facility
“MOU” Memorandum of Understanding
“MP” Member of Parliament
“MPF” Major Project Facilitation
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“MRIT” Metropolitan Region Improvement Tax
“MRS” Metropolitan Region Scheme
“MSC” Ministerial Steering Committee
“mtpa” million tonnes per annum
“MWGACC” Mid West Gascoyne Area Consultative Committee
“NSW” New South Wales
“NTC” National Transport Commission
“NWS” North West Shelf
“NWSV” North West Shelf Venture
“ODAC” Office of Development Approvals Coordination
“PAC” Public Accounts Committee
“PACU” Project Approvals Coordination Unit
“PHPA” Port Hedland Port Authority
“PICC” Pilbara Industry’s Community Council
“PPP” Public Private Partnership
“PRRT” Petroleum Resource Rent Tax
“Qld” Queensland
“RDA” Regional Development Australia
“RDC” Regional Development Council
“RMP” Regional Minerals Program
“RNP” Ravensthorpe Nickel Project
“SAMF” Strategic Asset Management Framework
“SDM” Supported Debt Model
“SECWA” State Energy Commission
“SEQ” South East Queensland
“SIA” Strategic Industrial Area
“SIAC” Standing Inter-Agency Committee of Chief Executive Officers
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“SIS” State Infrastructure Strategy
“SPP” Specific Purpose Payment
“SSS” Systemic Sustainability Study
“TIAC” Technology and Industry Advisory Council
“UDP” Urban Development Program
“VFI” Vertical Fiscal Imbalance
“WA” Western Australia
“WALGA” Western Australian Local Government Association
“WAPC” Western Australian Planning Commission
“WAPET” West Australian Petroleum
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GLOSSARY
“accelerated depreciation” The decline in value of a project asset at a faster rate than the actual rate of decline of the asset’s usefulness.2
“Build Own and Operate” Infrastructure projects built, owned and operated by the private sector.3
“Build Own Operate and Transfer” Infrastructure projects built, owned and operated by the private sector for a substantial period of time after which ownership is transferred to the public sector.4
“economic infrastructure” Refer to ‘hard’ infrastructure definition
“hard infrastructure” Also referred to as ‘economic’ infrastructure, this term relates primarily to ‘utilities’ such as water, sewerage, drainage, electricity, gas, telecommunications, rail, roads and public transport.5
“Horizontal Fiscal Equalisation” As practised by the Commonwealth Grants Commission, the principle of HFE refers to the allocation of fiscal benefits by the Commonwealth among the states.6 The aim of HFE is to enable each state to provide the same standard and level of services were the same effort to be made to raise revenue from the state’s own sources.7
“Public Private Partnership” The procurement of infrastructure and ancillary services via a joint arrangement between the public and private sectors.8
“social infrastructure” Refer to ‘soft’ infrastructure definition
“soft infrastructure” Also referred to as ‘community’ or ‘social’ infrastructure, this term relates primarily to human services that are used by the community.
2 WA Department of Treasury and Finance, Business Investment in Western Australia Economic Research Paper, January 2006, p43. Available at: www.dtf.wa.gov.au/cms/uploadedFiles/business_investment2006.pdf Accessed on 8 February 2008. 3 Government of Western Australia, Framework for the State Infrastructure Strategy Green Paper, September 2006, p36. 4 Ibid., p37. 5 Public Accounts Committee, Inquiry into Developer Contributions for Costs Associated With Land Development, Legislative Assembly, Parliament of Western Australia, Perth, 21 October 2004, p3. 6 Commonwealth Grants Commission, Information Paper CGC 2002/1 Guidelines for Implementing Horizontal Fiscal Equalisation, September 2002, p4. Available at: www.cgc.gov.au/__data/assets/pdf_file/0014/3416/CGC_2002_1_Guidelines_for_Implementing_HFE.pdf Accessed on 1 November 2007. 7 Department of Treasury and Finance, Discussion Paper on Commonwealth-State Relations, Government of Western Australia, Perth, April 2006, p19. 8 Department of Treasury and Finance, Partnerships for Growth, Government of Western Australia, Perth, December 2002, p3.
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Examples include local parks, recreation centres, child care centres and public libraries.9
“Vertical Fiscal Imbalance” The difference between the revenue raising capacity and expenditure responsibility of different levels of government, where shortfalls in revenue at one level of government are funded from the surplus revenue of the other.10
9 Public Accounts Committee, Inquiry into Developer Contributions for Costs Associated With Land Development, Legislative Assembly, Parliament of Western Australia, Perth, 21 October 2004, p3. 10 Department of Treasury and Finance, Discussion Paper on Commonwealth-State Relations, Government of Western Australia, Perth, April 2006, p11.
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EXECUTIVE SUMMARY
This is the Report of the Public Accounts Committee on its Inquiry into Funding Arrangements for Western Australian Infrastructure Projects. The Committee resolved to conduct the Inquiry on 1 November 2006 on its own motion. The Inquiry falls within the Committee’s portfolio responsibility for Federal Affairs, acquired at the commencement of the 37th Parliament.
Chapter One outlines the Committee’s resolution for the conduct of the Inquiry, the scope of the review and the process adopted for the gathering of evidence.
The Inquiry was prompted by concerns regarding the development of economic and social infrastructure as a necessary foundation for the state’s current economic boom, particularly with respect to resource developments. The report explores current funding arrangements for the provision and timeliness of resource-related infrastructure, with particular focus on federal-state funding arrangements. Despite funding for new or improved infrastructure associated directly or indirectly with major projects often being provided and/or maintained by state and local governments, there is an apparent inequity in that the federal government derives significant financial benefit from the economic activity enabled by such infrastructure. The Committee tenders recommendations for improved performance in this area, suggesting that the ability of the state to retain a greater proportion of its revenue to facilitate resource projects would have economic advantages for the state and the nation as a whole.
The Committee’s Inquiry examined both economic or ‘hard’ infrastructure and social or ‘soft’ infrastructure, recognising that not only are roads, rail, water, sewerage, port facilities and electricity important, but so too is infrastructure that directly supports community needs such as hospitals, libraries, child care, and recreation facilities.
Chapter Two examines factors and arrangements impacting on infrastructure funding.
The Committee explains that legislative and other formal arrangements for infrastructure funding associated with major resource projects do not vary significantly from those affecting the funding of any major infrastructure. It notes however the significance of infrastructure in supporting major projects and furthering economic development. The Committee suggests that the ability to progress critical infrastructure is impacted upon by a number of factors and arrangements, including agreements and legislation and the role and priorities of agencies responsible for providing or facilitating infrastructure funding.
A brief review of agreements and legislation governing land-based and off-shore resource projects indicates that generally the state government is responsible for setting royalty and other arrangements for land-based projects and the commonwealth for levying taxes on offshore projects that fall outside of state jurisdiction. The Committee provides context for those arrangements and the associated flow of revenue to the commonwealth and the state governments.
The Committee notes that in the period 2006-2007, there were 62 operating oil and gas fields in Western Australia, with the majority of development taking place in offshore areas where revenue
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accrues to the commonwealth. By way of example, during this period the state government received a total of $714 million in petroleum royalties whereas the commonwealth received almost $1 billion in revenues from projects in commonwealth waters off Western Australia.
The Chapter also broadly outlines the major stakeholders responsible for providing or facilitating infrastructure funding at a commonwealth and state level to indicate the complexity of arrangements in place. The Committee notes that there has been some replacement of commonwealth agencies or their programs as a consequence of the change of federal government in November 2007. Given that a significant proportion of the evidence was tendered prior to this occurring, the Committee provides some commentary on previous arrangements.
Chapter Three examines current funding arrangements for infrastructure projects.
The Committee selects six major infrastructure projects that reflect the imbalance between revenue benefits for the federal government and fiscal costs to the state. The level of federal and state investment in, and control over, projects and the adequacy of those arrangements are explored, as well as other issues pertinent to the effective implementation and/or management of related infrastructure. The projects chosen have, or are likely to have, a significant impact on the state and/or national economy, with the provision of infrastructure generally critical to operational outcomes/outputs.
The projects reviewed are located in different regions of the state extending from Ravensthorpe in the south of the state to onshore and offshore regions in the northwest. Some major themes that emerged are as follows:
disparity in levels of funding between the state and commonwealth governments for infrastructure supporting major resource projects, despite the commonwealth benefiting substantially from such projects;
failure of the commonwealth government to contribute to certain infrastructure projects despite revenue stream going to the commonwealth government;
Commonwealth government contributions remaining static despite expanded project- related infrastructure requirements;
Commonwealth government’s policy of supporting individual projects on a case-by-basis so that funding and infrastructure is contingent on those projects progressing;
time delays between demand for and provision of infrastructure frustrating commercial and industrial development, at times resulting in companies opting for a fly-in-fly out workforce instead of one that is residentially based;
lack of project management support for local government authorities in relation to particular aspects of a project;
absence of a coordinating agency with sufficient legislative authority to ensure better coordination of government agencies and alignment of core project components;
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insufficient focus on the development of ‘soft’ infrastructure for projects;
inadequate secure contracts for gas supply, limiting downstream processing opportunities in the northwest;
generous contribution of resource companies to social infrastructure although this may be tied to company outcomes;
hesitancy on the part of those resource companies to contribute unless matching funding is provided by the state government with the state commitment also pending a federal contribution; and
current difficulties in securing third-party access to infrastructure, particularly railway networks, limiting progress of smaller resource developments.
The Committee finds that Western Australia is the location of economically significant major infrastructure projects either under way, under development or proposed, which will have benefits for the state as well as the nation. Further, that there is evidence of a disparity between the costs/benefits to the state compared to the commonwealth for projects of national significance whereby benefits accrue to the commonwealth but the majority of infrastructure costs, where these are to be met by government, are borne by the state. Finally, that the long-term nature of resource projects and/or prospects for further expansion highlights the importance of infrastructure to sustain individual developments, the communities that support these and the economic prosperity of Western Australia into the future.
Chapter Four examines the adequacy of funding arrangements for infrastructure provision from a thematic perspective, based on evidence presented to the Inquiry:
The disadvantage faced by regional areas
Evidence indicated a number of concerns regarding infrastructure provision in regional areas including the extent, cost and maintenance of infrastructure created by regional isolation and workforce shortages; the varying impact of social and economic infrastructure on individual communities; the impact on local government of inadequate maintenance and replacement funding for infrastructure; and the mismatch between revenue derived from the regions and investment in infrastructure.
It was perceived that there would be an intensification of a number of these problems in high growth areas unless there were significant variations in arrangements for the building and maintenance of all types of infrastructure. Failure to amend current practices was seen to impact on the growth of major resource projects and the capacity of the regions to attract and retain a skilled workforce for projects.
The Committee finds that there are severe inadequacies in regional areas, especially in those areas that are supporting major resource projects, and that this is largely the result of lack of funding. It determines that this will likely impact on economic growth through affecting the establishment
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and/or development and/or expansion of major resource projects. Further, that although infrastructure pressure points are common in regional areas, shortfalls are area specific.
Insufficient consideration of ‘soft’ infrastructure
The inter-reliance of economic and social infrastructure was viewed as being critical to the attraction of a workforce for resource projects, for business sustainability and expansion and for maximising government revenue. The evidence suggested that government should focus on planning social infrastructure for resource projects to encourage resource development. It was noted however that the matter was not so simplistic with careful planning required by government to ensure that public monies are expended appropriately on support infrastructure that mitigates the risk of stranded assets yet enables a swift response in the event of industry expansion or an unforseen change in industry circumstances.
The Committee finds that social and economic infrastructure are interdependent categories that have an equal impact on major resource projects; that social infrastructure has a direct impact on workforce attraction and retention; and that planning for social infrastructure to support resource projects has inherent difficulties given the mutability of projects.
The lack of coordination between levels of government
There were a number of criticisms cited about the lack of coordination between levels of government, and to a lesser extent state government and industry, in the development of infrastructure. These included:
inadequate strategic planning and coordination across levels of government despite overlapping areas of responsibility in the development of infrastructure;
lack of consistency, coordination and consultation with the state by the commonwealth with regard to investment in Western Australia;
lack of synchronicity to date between the commonwealth government’s investment priorities and that of the state, resulting at times in allocation of commonwealth funds to areas of lower state priority, and often requiring a state contribution;
blame-shifting between state and federal governments resulting in delays and impacting on the country’s reputation in the international market;
lack of competitiveness by the state in attracting business investment;
lack of coordination as a consequence of articulation of funding along agency lines rather than across the board;
coordination hampered by a planning focus on local government areas rather than regional areas; and
lack of agreement between government and industry regarding priorities for infrastructure investment.
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The Committee finds that lack of coordination between tiers of government has a major impact on the provision of infrastructure in regional areas and that increased coordination is required to assist in the timely provision of infrastructure.
The unfair cost burden on local government, not only in providing infrastructure, but also in the maintenance of infrastructure provided by third parties
Local governments have responsibility for providing and maintaining infrastructure including community amenities, facilities under federal government jurisdiction, and infrastructure transferred from developers. A number of submissions argued for increased funding to local governments to enable them to operate effectively, proffering the following arguments:
social and economic benefits for the state;
lack of long-term planning resulting in cost-shifting to local government for the construction and maintenance of infrastructure;
a significant shortfall in current funding for local government maintenance of infrastructure; and
concessions under State Agreement Acts allowing the payment of rates on the unimproved value of land by construction camps associated with industrial developments.
The Committee finds that local government is burdened with increasing responsibility for infrastructure provision in regional areas; that local governments in areas supporting major resource projects are not receiving adequate funding to build, maintain and replace infrastructure; and that rating concessions under State Agreement Acts appear to impact negatively on the revenue base of relevant local government authorities.
Federal government investment
Federal government investment in infrastructure occurs primarily through the Commonwealth Grants Commission and through Specific Purpose Payments. The majority of submissions criticised the amount and method of payment of federal funding to date, given the impact of inadequate investment in infrastructure on project delays and losses, with some submissions citing remedies. A number of proponents also tendered arguments for the return of additional revenue to the state for social and economic infrastructure.
The Committee finds that to date the federal government’s approach to funding has not recognised the unique pressures on infrastructure delivery in Western Australia or the impact of infrastructure provision on the development of the resources sector.
State government planning, investment and coordination
It was reported that government responsibility for, and funding of, infrastructure has become increasingly complex in recent years with a multitude of agencies and committees coordinating different aspects of infrastructure provision. Although both the Western Australian Planning
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Commission and the Office of Development Approvals Coordination have a coordination role, these roles are either informal or relatively limited in scope.
Evidence to the Inquiry indicated attempts to improve the planning and coordination process but processes were seen to be insufficiently comprehensive. There was a sense that current strategic planning frameworks failed to provide a state-wide, whole-of-government approach across all phases of infrastructure development and prioritisation of classes of infrastructure and that there was a lack of transparency in forward planning. Although the impending State Infrastructure Strategy may address high level planning, it was perceived that it would not attend to methods of coordination to ensure timeliness of infrastructure provision.
The Committee finds that while there have been improvements in recent years in the coordination, planning and provision of infrastructure at state level, a stronger role needs to be taken in this regard. Further, although the Committee acknowledges that the impending State Infrastructure Strategy will improve planning, coordination of infrastructure provision needs to be addressed. The Committee views that release of land for both soft and hard infrastructure provision is necessary, noting that the Metropolitan Region Improvement Tax and Metropolitan Region Scheme have been cost effective in securing land for the purposes of infrastructure provision in the metropolitan area. The Committee recommends that government give consideration to extending the Metropolitan Region Improvement Tax and Metropolitan Region Scheme to regional areas.
Chapter Five examines strategies for improving funding arrangements for Western Australian Infrastructure Projects.
Mechanisms for increasing Western Australia’s share of federal funding
A number of mechanisms were proposed for increasing Western Australia’s share of federal funding, including:
Reforming federal-state financial relations
Commonwealth grants are the largest single source of revenue for Western Australia and comprise untied and tied funding such as Specific Purpose Payments. A number of mechanisms to reform the current process were reviewed. Firstly, the development of a new funding model involving joint prioritisation of funding, ending input controls and micromanagement by other levels of government and rationalisation of existing functions and funding arrangements. Secondly, reimbursement to the states by the commonwealth government of further profits derived from state economic development, and commensurate sharing of costs between both tiers of government where there is significant national benefit from a project.
The Committee notes that the incumbent federal government has agreed to review commonwealth-state funding arrangements in consultation with the states, with financial arrangements likely to be finalised and ready for Council of Australian Governments consideration around December 2008. Nonetheless, the Committee finds that federal-state financial relations impact on the provision of infrastructure funding to the state.
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Negotiating favourable terms from offshore projects
It was suggested that improved investment in state infrastructure could occur through increasing the return of federal revenues from offshore projects. The North West Shelf shared royalty arrangement between the commonwealth and the state was cited as an example however, it was recognised that the arrangement evolved in response to a precise set of circumstances and would be unlikely to be replicated in regard to other offshore projects. That said, the Committee considered that some other form of royalty sharing arrangement could be determined that would benefit state infrastructure and services supporting offshore projects.
The Committee finds that there is a strong case for the benefits of offshore resource developments to be shared between the commonwealth and Western Australia.
The Committee recommends that the formal revenue sharing arrangement committed to by the federal government for the Gorgon (and possibly Pluto) project/s be expedited.
Reducing tied funding to the state in the area of infrastructure provision
Specific Purpose Payments were seen to limit the state’s capacity to apply funds to areas it determines necessary and to also constrain its capacity to support the development of infrastructure for major projects. AusLink was highlighted, with concern expressed that the second AusLink program to be released in 2009-2010 will create further problems due to a requirement for a matching financial contribution from the state. The Committee considers that AusLink should be re-examined by the commonwealth government to address land transport access challenges, particularly in relation to regional ports.
Improving the efficiency of federal government processes
The Committee views that improved efficiency of federal government processes is necessary to ensure more equitable funding for Australian jurisdictions and that this might occur through the creation of a federal infrastructure strategy and fund/s. The Committee notes that the incumbent federal government has indicated a commitment to long-term planning for infrastructure needs through the establishment of Infrastructure Australia.
The Infrastructure Canada model is reviewed, giving particular regard to its funding arm, Building Canada, as a mechanism to provide planning and coordination and targeted funding for infrastructure priorities.
The Committee finds that the model has the advantage of coordinating all levels of government; providing a long-term strategic vision for infrastructure provision; connects strategic priorities with funding and provides Canadian non-federal jurisdictions with flexible funding with minimal conditions and reporting requirements.
The Committee recommends that the state liaise with the federal government in relation to investigating the applicability of the Canadian model, in particular Building Canada, with a view to streamlining the process of coordinating and funding infrastructure.
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Improving the efficiency of state government processes
The Committee has investigated mechanisms for streamlining processes in Western Australia with regard to the provision of infrastructure.
Creating plans for major infrastructure provision overseen by a Coordinator General
Although the Committee acknowledges that the impending State Infrastructure Strategy will provide a state-wide infrastructure planning framework, it is concerned about its non-statutory basis and views that there needs to be sound coordination for the Strategy to effective. Evidence did not support the requirement for an additional agency but rather a better approach to coordinating existing agencies.
The Committee examined the role of the Office of the Coordinator General in Queensland, perceiving it to have the necessary coordination powers. In brief, the Coordinator General has extensive powers including: the ability to declare ‘significant projects’; the ability to facilitate the planning approvals process in relation to prescribed projects; establish deadlines; and make a decision in lieu of an agency not meeting the prescribed schedule, essentially resulting in more streamlined processes.
The Committee finds that there are clear advantages for both government and proponents in being able to identify significant projects. Additionally the approach enables the state government to ensure a rigorous approvals process for projects that may have a controversial or extensive impact on the community. The powerful legislation underpinning the role of the Coordinator General in Queensland streamlines infrastructure approvals processes in a way that does not occur in Western Australia and the Committee therefore considers it likely that an Office of the Coordinator General or equivalent in Western Australia will have significant benefits for this state and merits further investigation.
Statutory and other planning
As part of its investigation of the Queensland model, the Committee examined the South East Queensland Regional Plan and its companion document, the South East Queensland Infrastructure Plan. The Regional Plan is a statutory document designed to manage growth and to direct the future planning decisions of the state. The Infrastructure Plan identifies the Queensland Government’s infrastructure priorities necessary to implement the Regional Plan and is closely linked to the budget program of government.
The Committee finds that the Queensland model’s effectiveness is the result of the status and interaction of the Regional and Infrastructure plans. Further, that although the impending Western Australian State Infrastructure Strategy resembles aspects of the Queensland plans, it does not have the power of a statutory document.
The Committee recommends that the Western Australian Government consider establishing an Office of the Coordinator General to enable the state to adopt a coordinated approach to infrastructure planning and a common decision-making framework for both state and local
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government. Further, that the government investigate the benefits of a statutory infrastructure strategy supported by an infrastructure delivery and funding plan.
Dedicated state infrastructure fund
A dedicated state infrastructure fund was proposed to address delays associated with infrastructure projects. Suggestions were proffered in evidence on the scope, composition and use of such a fund. The Committee also referenced the federal government’s commitment to establishing a Western Australian Infrastructure Fund to invest in infrastructure over the next 20 years.
The Committee recommends that the state government consider a series of sinking funds or quick turnaround mechanisms for defined infrastructure needs such as those arising from port expansions or resource projects which have resulted in unanticipated pressures on local communities.
Assisting local governments
Evidence to the Inquiry indicates that local governments in growth areas are coming under increasing pressure. Assisting local governments will involve improving the efficiency of infrastructure funding processes and/or increasing the ability of local governments to fund infrastructure.
In the first instance, it was acknowledged that the State Infrastructure Strategy may address some of the inefficiencies in infrastructure funding processes by providing a clearer long-term plan for major infrastructure projects. The Committee examines the Queensland model, specifically LG Infrastructure Services, which assists local governments with infrastructure related matters, from preliminary assessment and business case development to project commissioning, monitoring and review. It is estimated that for every $1 million invested in the service there has been a $100 million return in savings.
The Committee finds that there is value is assessing the applicability of such a service to the Western Australian context.
In terms of increasing the ability of local governments to fund infrastructure, it was noted that the principal source of revenue for local governments to meet ongoing infrastructure costs is own- source revenue. The Committee finds that there is evidence to suggest that local governments may be unfairly impacted by rating concessions granted through State Agreement Acts and supports efforts by the Department of Industry and Resources to investigate an appropriate methodology for calculating rates under those Agreements.
As major resource projects are generally not subject to the usual planning and development controls, it was suggested that there be a more extensive application of the developer contribution regime. The state government is currently developing a more comprehensive system of developer contributions. While the framework for applying developer contribution plans may not extend to major infrastructure projects, voluntary agreements between local government and developers, which already exist, will continue to be an option. The Committee acknowledges that while there have been substantial contributions from some developers as a consequence of voluntary
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agreements, it is not sensible to rely on contributions motivated by commercial objectives and that a more inclusive approach to priority setting that involves both industry and local government is required.
The Committee finds that developer contributions via voluntary arrangements and/or State Agreements are an appropriate mechanism for achieving more equitable outcomes in the provision of social infrastructure to communities impacted by major resource projects, however this should occur in consultation with local government to ensure community benefit is maximised.
Other fiscal incentives were suggested to enable local government to provide adequate infrastructure. The Committee finds that there is scope for the federal government to expand fiscal incentives for local government with respect to infrastructure and that this should include investigating the potential for community infrastructure funding and a revised methodology for escalating Financial Assistance Grants.
Engaging the private sector
A number of submissions to the Inquiry supported greater private sector involvement in infrastructure, particularly via Public Private Partnerships as a means of realising private sector and government infrastructure agendas. Significant issues that influence private sector engagement are considered including tax regimes that encourage investment in high capital cost, long life assets, and tax benefits for private sector providers of public infrastructure.
The Committee finds that there is scope for greater private sector engagement in infrastructure provision in the state although notes that Public Private Partnerships may not necessarily be the most applicable option in all circumstances. Variants of Public Private Partnerships and alliance contracting may be appropriate alternatives.
It is apparent that the level of investment in and control of, infrastructure impacts on access to infrastructure and can also influence private sector investment. In general, the state government favours publicly funded common-user infrastructure, and the private sector prefers to build, own and operate infrastructure in perpetuity, although both value a partnership approach and both acknowledge that there can be different arrangements to suit different circumstances.
Resource companies overall appear keen to work with government to improve social infrastructure in regional areas. The Committee finds however, that in any partnership approach relating to the provision of infrastructure, a clear definition of responsibilities, consultation between all affected parties and effective coordination are critical to achieving a favourable outcome.
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FINDINGS
Page 50
Finding 1
Western Australia is the location of major infrastructure projects, which are either underway, under development or proposed. These projects have, and will continue to have, significant national and state economic benefits.
Page 50
Finding 2
There is evidence of a disparity between the costs/benefits to the state compared to the commonwealth for projects of national significance whereby benefits accrue to the commonwealth but the majority of infrastructure costs, where these are to be met by government, are borne by the state.
Page 51
Finding 3
The long-term nature of resource projects and/or prospects for further expansion highlight the importance of infrastructure to sustain: individual resource developments; the communities that support these developments; and the economic prosperity of Western Australia.
Page 55
Finding 4
There are severe infrastructure inadequacies in regional areas, especially in those areas that are supporting major resource projects.
Page 55
Finding 5
Inadequacies in regional infrastructure are largely the result of lack of funding.
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Page 56
Finding 6
It is likely that inadequate infrastructure will have an impact on economic growth through affecting the establishment and/or development and/or expansion of major resource projects.
Page 56
Finding 7
Although infrastructure pressure points are common in regional areas, each area has specific shortfalls.
Page 60
Finding 8
Economic infrastructure and social infrastructure are interdependent categories which have an equal impact on major resource projects.
Page 60
Finding 9
The provision of social infrastructure has a direct impact on the attraction and retention of workforces, so vital to the growth and sustainability of resource companies.
Page 60
Finding 10
Planning social infrastructure to support resource projects has inherent difficulties, considering the mutability of projects. Failure to plan adequately for social infrastructure and accommodate changing needs however, risks compromising the liveability of communities and the long-term viability of major infrastructure projects.
Page 65
Finding 11
Lack of coordination between federal, state and local governments has a major impact on the provision of infrastructure in regional areas.
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Page 65
Finding 12
Increased coordination between all tiers of government, including within state government, will assist in the timely provision of infrastructure.
Page 68
Finding 13
Local government is bearing an increasing responsibility for infrastructure provision and/or maintenance in regional areas.
Page 68
Finding 14
Local governments in areas supporting major resource projects are not receiving adequate funding to build, maintain and replace infrastructure.
Page 68
Finding 15
Local governments appear to be negatively impacted by some State Agreement Acts whereby companies are able to secure rating concessions in some instances.
Page 76
Finding 16
To date, the federal government’s approach to providing funds to Western Australia has not recognised the unique pressures involved in infrastructure delivery in the state.
Page 82
Finding 17
While there have been improvements in recent years, the state government needs to take a stronger role in the coordination, planning and provision of infrastructure in regional Western Australia.
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Page 82
Finding 18
While the State Infrastructure Strategy will improve planning, the coordination of infrastructure provision also needs to be addressed.
Page 82
Finding 19
Timely land release is vital for both soft and hard infrastructure provision.
Page 83
Finding 20
The Metropolitan Region Improvement Tax and the Metropolitan Region Scheme have been cost-effective in securing land for the purposes of effective infrastructure provision in the metropolitan area.
Page 89
Finding 21
Federal-state financial relations impact on the provision of infrastructure funding to Western Australia.
Page 92
Finding 22
There is a strong case for a greater sharing of benefits from offshore resource developments between the commonwealth and Western Australia.
Page 95
Finding 23
AusLink in its present form does not adequately cater for Western Australia’s freight task, in terms of road infrastructure needs and access challenges associated with regional ports.
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Page 102
Finding 24
The Infrastructure Canada model has the advantage of coordinating all levels of government; providing a long-term strategic vision for infrastructure provision; connecting strategic priorities with funding; and, from the perspective of provinces, territories and local government, providing flexible funding with minimal conditions and reporting requirements attached.
Page 108
Finding 25
There are clear advantages both for government and proponents in having the ability to identify significant projects, as provided for under the State Development and Public Works Organisation Act 1971 (Qld). Declaration of a significant project has the additional benefit of enabling the state government to ensure a rigorous approvals process for projects that may be controversial or have an extensive impact on the community.
Page 109
Finding 26
The powerful legislation underpinning the role of the Coordinator General allows for a streamlined infrastructure approvals process for prescribed projects in a manner which does not occur in Western Australia. While certain functionalities of the Coordinator General are reflected in the roles of the Office of Development Approvals Coordination and the Western Australian Planning Commission in Western Australia, the important, legislatively supported coordinating function, with the power to compel approvals from state government agencies, does not exist.
Page 109
Finding 27
An Office of the Coordinator General or equivalent in Western Australia would be likely to have significant benefits for the delivery of major infrastructure projects in this state and merits further investigation.
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Page 110
Finding 28
As the role of the Coordinator General allows for wide-ranging powers with no review process, a careful and transparent recruitment process would be necessary, should such a position be adopted in Western Australia.
Page 110
Finding 29
The risks of having one person in such a powerful role requires careful consideration, however the benefits appear to far outweigh these risks.
Page 113
Finding 30
The effectiveness of the Queensland model for infrastructure provision is largely the result of the status and interaction of the SEQ Regional Plan and SEQ Infrastructure Plan.
Page 114
Finding 31
Indications are that the Western Australian State Infrastructure Strategy will resemble aspects of the SEQ Regional and Infrastructure Plans. However, the State Infrastructure Strategy will not have the power of a statutory document.
Page 116
Finding 32
The release of the State Infrastructure Strategy represents a timely opportunity to examine mechanisms for better linking infrastructure prioritisation to delivery, as occurs in south east Queensland.
Page 130
Finding 33
There is value in exploring the Queensland LG Infrastructure Services model further and its applicability to the Western Australian context.
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Page 133
Finding 34
There is evidence to suggest that local governments may be unfairly impacted by rating concessions granted through State Agreement Acts. The Committee supports efforts by the Department of Industry and Resources to investigate an appropriate methodology for rating land under State Agreements.
Page 138
Finding 35
Developer contributions via voluntary arrangements and/or State Agreements are an appropriate mechanism for achieving more equitable outcomes in the provision of social infrastructure to communities impacted by major infrastructure projects, however this needs to occur in consultation with local government to ensure that benefits to the community are maximised.
Page 140
Finding 36
There is scope for the federal government to expand fiscal incentives for local government with respect to infrastructure.
Page 143
Finding 37
There is potential for greater engagement of the private sector in infrastructure provision in Western Australia.
Page 147
Finding 38
The federal government’s removal of accelerated depreciation as a means of valuing long-life infrastructure assets has been identified as a disincentive for private sector investment.
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Page 147
Finding 39
Recent federal government taxation reforms are a positive step towards redressing the removal of accelerated depreciation and encouraging greater private sector involvement in infrastructure provision.
Page 150
Finding 40
There is scope for greater private sector involvement in infrastructure provision in Western Australia although Public Private Partnerships may not necessarily be the most appropriate mechanism in all instances.
Page 150
Finding 41
Other forms of infrastructure procurement involving the private sector such as variants of Public Private Partnerships and alliance contracting may be options for increasing engagement of the private sector in infrastructure provision in Western Australia.
Page 154
Finding 42
In any partnership approach between government and the private sector relating to the provision of infrastructure, a clear definition of responsibilities, consultation between all affected parties, and effective coordination are critical.
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RECOMMENDATIONS
Page 83
Recommendation 1
That the Western Australian Government investigate the merits of adapting the Metropolitan Region Scheme and Metropolitan Region Improvement Tax to regional areas.
Page 92
Recommendation 2
That the Western Australian Government expedite the formalisation of a revenue sharing arrangement with the commonwealth for the Gorgon (and possibly Pluto) project/s.
Page 95
Recommendation 3
That the Western Australian Government make submission to the federal Minister for Infrastructure to re-examine AusLink 2 with a view to accommodating a better fit between the AusLink network and Western Australia’s freight task, including access arrangements around regional ports.
Page 102
Recommendation 4
That the Western Australian Government make submission to the federal government to investigate the Infrastructure Canada model, and in particular its mechanism for funding, Building Canada, with a view to streamlining the coordination and funding of infrastructure between the tiers of government in Australia.
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Page 117
Recommendation 5
That the Western Australian Government investigate the potential for an infrastructure identification and prioritisation strategy, preferably with statutory backing, which is supported by an infrastructure delivery and funding plan.
Page 118
Recommendation 6
That the Western Australian Government investigate the establishment of an Office of the Coordinator General to enable a coordinated approach to infrastructure planning/ common decision-making framework for both state and local government.
Page 118
Recommendation 7
That the Western Australian Government investigate establishing an Office of the Coordinator General within the Department of the Premier and Cabinet and/or confers sufficient powers to enable the position to compel actions from relevant decision making authorities.
Page 123
Recommendation 8
That the Western Australian Government consider either a series of sinking funds or quick- turnaround mechanisms for defined infrastructure needs, such as those arising from port expansions or new significant resource projects which have resulted in unanticipated pressures on local communities.
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Page 131
Recommendation 9
That the Western Australian Government, in cooperation with the Western Australian Local Government Association, investigate the feasibility of an independent advisory body or bodies to assist local governments with the funding and delivery of infrastructure in this state.
Page 141
Recommendation 10
That the Western Australian Government make submission to the federal government to investigate the potential for community infrastructure funding and/or scope for revising the methodology for escalating Financial Assistance Grants.
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PUBLIC ACCOUNTS COMMITTEE
MINISTERIAL RESPONSE
In accordance with Standing Order 277(1) of the Standing Orders of the Legislative Assembly, the Public Accounts Committee directs that the Minister for Federal-State Relations, the Minister for State Development, the Minister for Planning and Infrastructure, and the Minister for Local Government report to the Assembly as to the action, if any, proposed to be taken by the Government with respect to the recommendations of the Committee.
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PUBLIC ACCOUNTS COMMITTEE
CHAPTER 1 INTRODUCTION
1.1 Background
The Public Accounts Committee acquired portfolio responsibility for federal affairs at the commencement of the 37th Parliament. While Western Australian concerns regarding federal-state financial relations are not new, the booming resources sector and its reliance on infrastructure development, both directly through its operations and indirectly in the increased population pressure in regional areas, has suggested a need to revisit the issue. The question of which level of government should be responsible for coordinating, providing or assisting to fund major infrastructure prompted the establishment of this Inquiry, and was raised as a strong concern in all submissions, whether from state government departments, industry peak bodies, local governments, or resources companies themselves. This indicates the importance of formally examining means of achieving the most appropriate and fair arrangements for infrastructure funding.
In the period 2001-2002 to 2005-2006, Western Australia raised the highest amount of revenue of all states and territories, confirming its role as the powerhouse of the Australian economy.11 Within the state, the market income of the mining industry grew by 41.4 per cent in 2005-2006, and the resources sector as a whole grew by 23 per cent in 2006,12 bringing its value to $48.4 billion.13 Mineral exploration continues to accelerate, with related expenditure in Western Australia having risen 8.2 per cent in each quarter between the December quarter 2005 and the September quarter 2007. This compares to an average 1.2 per cent increase per quarter between 1988 and 2005.14 Indeed, the resources sector now creates about 80 per cent of Western Australian merchandise exports, with mining alone being responsible for 3.4 per cent of the state’s 2006-2007 growth rate of 6.3 per cent.15 16
11 Commonwealth Grants Commission, Relative Fiscal Capacities of the States, 2007 Update Report. Available at: www.cgc.gov.au/state_finances_inquiries/2007_update_report2/relative_fiscal_capabilities_of_the_states Accessed on 27 August 2007. 12 Department of Treasury and Finance, Gross State Product report 2005-2006. Available at: www.dtf.wa.gov.au/cms/tre_content.asp?id=635 Accessed on 28 August 2007. 13 Chamber of Minerals and Energy, ‘WA Resources Sector Underpins State Budget Growth Forecasts’ Media Release, 10 May 2007. Available at: www.cmewa.com.au/index.php?pid=311&menuid=413&PHPSESSID= ef63d8ea24c7db1198c1a11aba70c4a5 Accessed on 28 August 2007. 14 1367.5 - Western Australian Statistical Indicators, ‘Mining’, 16 January 2008. Available at: www.abs.gov.au/AUSSTATS/[email protected]/Lookup/1367.5Main%20Features8Dec%202007?opendocument&tabname=Sum mary&prodno=1367.5&issue=Dec%202007&num=&view= Accessed on 3 April 2008. 15 Chamber of Minerals and Energy, ‘WA Resources Sector Underpins State Budget Growth Forecasts’ Media Release, 10 May 2007. Available at: www.cmewa.com.au/index.php?pid=311&menuid=413&PHPSESSID= ef63d8ea24c7db1198c1a11aba70c4a5 Accessed on 28 August 2007. 16 Department of Treasury and Finance, Annual Gross State Product 2006-2007, 16 November 2007, p1. Available at: www.dtf.wa.gov.au/cms/tre_content.asp?id=635 Accessed on 3 April 2008.
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The responsibility for funding major infrastructure such as roads, rail and sewerage has historically resided with the state government, but there is a large degree of variation in the funding of major infrastructure relating to resource projects. The resources sector often constructs infrastructure for its own projects, such as road and rail, and in areas of the state such as the North West, resource companies have contributed significantly to community-based infrastructure, such as housing.17 Nevertheless, it is common for the funding of new or improved infrastructure, necessitated directly or indirectly by major projects, to be provided and/or maintained by state and local governments. Such infrastructure includes child care and recreation facilities, libraries, water treatment plants or hospitals in regional centres. Funding for some major roads is derived from the federal government through AusLink, but the construction and/or maintenance of 88 per cent of roads falls primarily to local governments, with financial assistance from the state and federal governments.18
Despite the state government’s responsibility for funding infrastructure to support major resource projects, and local government’s responsibility for maintaining it, the federal government derives significant financial benefits from these projects. In addition to the Goods and Services Tax (GST) revenue it receives from Western Australia, the federal government levies a range of taxes on resources produced in the state, including the Petroleum Resource Rent Tax, and it collects income and company tax.19
A logical premise would be that the retention of more of the state’s income for the purposes of facilitating resource projects, rather than returning it to the commonwealth, would be beneficial not only for Western Australia, but for the nation. Of the $30 billion the state contributed to the federal government in 2005-2006, only $25 billion was returned to the state through Commonwealth Grants Commission funds, or Specific Purpose Payments, resulting in a net $5 billion windfall for the commonwealth. Further, in 2008-2009 Western Australia will lose an additional $350 million of its GST funding from the commonwealth.20 21 Redistribution of funds is an important function of the federal government to ensure equity for all Australians, but Western Australia’s inability to access the money generated by the state’s resources sector has the potential to hold back development, which has implications for not only the future prosperity of the state, but also for national prosperity.
With the resources boom underwriting the strength of the Australian economy, and the recent change in the federal government, it is an opportune time to examine the funding arrangements for major resource projects. As indicated above, facilitating major resource projects will increase national prosperity; conversely, failure to adequately provide necessary infrastructure may have
17 Submission No. 15 from Chamber of Minerals and Energy, 3 May 2007, p3. 18 Main Roads Western Australia. Available at: www.mainroads.wa.gov.au/NR/mrwa/run/start.asp Accessed on 26 October 2007. 19 Department of Treasury and Finance. Available at: www.dtf.wa.gov.au/cms/tre_content.asp?ID=782 Accessed on 28 August 2007. 20 Submission No. 18 from Department of Treasury and Finance, 12 May 2007, p4. 21 Hon. Eric Ripper, MLA, Treasurer, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 11 March 2008, p634.
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significant economic and social effects across the country. The Public Accounts Committee views that urgent consideration needs to be given to ensuring that resource projects are not held back by lack of infrastructure and that the federal government, which benefits directly from Western Australia’s resources, should contribute adequately to this task. To this end, the Committee announced its Inquiry into Funding Arrangements for Western Australian Infrastructure Projects on 1 November 2006.
1.2 Conduct of the Inquiry
The Committee’s terms of reference were developed with the intention of focusing on the adequacy of federal funding for Western Australian infrastructure projects, whilst maintaining the Committee’s capacity to examine related issues as they arose. Advice was also sought from Professor Greg Craven, a constitutional commentator, during the drafting phase of the terms of reference.22
The Premier, Minister for Planning and Infrastructure, and Treasurer were provided an early opportunity for input as the Committee requested comment on areas of state concern in relation to infrastructure projects. Otherwise, advertisements inviting submissions to the Inquiry were placed in The West Australian and Australian Financial Review newspapers on 10 March 2007. Submissions were also invited from state government departments, major resource companies, a range of peak representative bodies for local government and industry, and other relevant stakeholders.
Submissions received by the Committee were primarily from the stakeholder groups identified above. In total, the Committee received 22 submissions. These are listed in Appendix Three. A total of 16 public hearings were conducted in Perth between 26 September 2007 and 9 April 2008, taking evidence from 37 witnesses. Witnesses who gave evidence at the public hearings are detailed in Appendix Two. In addition to public hearings the Committee received 15 briefings. A list of briefings is provided at Appendix One.
The Committee undertook travel to the Pilbara and Great Southern regions of the state in July and August 2007 to investigate major resource projects and receive feedback from people ‘on the ground’. These trips were invaluable as they afforded the Committee greater insight into the challenges facing the resources sector in the construction of infrastructure to support major projects, and the effect on local communities and shires. The Committee also visited Queensland in March 2008 to examine the role of the Coordinator General in that state and models for planning infrastructure in the rapidly growing south eastern region of Queensland and delivery of regional infrastructure at the local government level.
1.3 Scope of the Inquiry
Infrastructure is generally separated into two types: economic or ‘hard’ infrastructure and social or ‘soft’ infrastructure. Economic infrastructure includes roads and rail, water and sewerage plants,
22 Professor Greg Craven, Deputy Vice Chancellor, Curtin University of Technology, Briefing, 18 October 2006.
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port facilities and electricity. Social infrastructure directly serves human needs, and includes libraries, hospitals, child care centres, recreation facilities and other services.
The Inquiry initially focused entirely on the provision of funding for economic infrastructure rather than social infrastructure, as this was considered to be most relevant to the establishment of major resource projects. However, after site visits in July and August 2007, it became clear that economic and social infrastructure provision are both fundamental to the development of such projects, because social infrastructure and the availability of suitable housing is a necessary minimum condition for attracting and retaining workers.
In addition, as a result of the Committee’s examinations, the focus of the Inquiry extended from funding per se to mechanisms for ensuring timely infrastructure provision. Evidence received indicated that the manner in which infrastructure is planned and coordinated is of equal or greater significance to funding.
The Committee selected the major projects reviewed in Chapter 3 as these represent examples of the imbalance between revenue benefits for the federal government and fiscal costs for the state government. In addition, these projects will have a significant impact on the state’s economy, and in each case infrastructure provision has a crucial role in the speed of construction, viability or the level of production possible. The Committee considered projects located in different areas of the state in order to discern common issues however, acknowledges that this review was limited to a small number of significant projects. It emerged during investigations that these projects clearly demonstrated the need for more effective coordination and planning, particularly in relation to social infrastructure.
1.4 Submissions and evidence
Following receipt of submissions, the Committee held a series of evidential hearings in order to clarify points raised in submissions to the Inquiry or determine current arrangements regarding the provision of infrastructure. These also enabled input regarding areas requiring improvement.
All evidence noted the challenges in infrastructure funding and the necessity of adequate infrastructure to continued economic growth. While some organisations described issues specific to their area, all agreed that urgent improvements to funding arrangements were needed. As the Chamber of Commerce and Industry submission pointed out:
The rapid economic growth … is revealing structural problems with the Western Australian economy, both in terms of economic and social infrastructure needs … High quality economic infrastructure, appropriately located suitable land and efficient planning processes are key enablers for industry growth and the attraction of business investment to WA, particularly for industries where investment location is flexible.23
It should be noted that a number of the submissions contained adaptations, or copies, of material also submitted to the Department of Treasury and Finance in response to its 2006 Green Paper,
23 Submission No. 19 from Chamber of Commerce and Industry, 29 May 2007, p5.
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which presented processes and policy relevant to the development of the State Infrastructure Strategy.24 The State Infrastructure Strategy is due for release in mid-2008. As mentioned in the Chairman’s Foreword, it is recommended that this Report be considered by the Western Australian Government as complementary to the State Infrastructure Strategy.
There were a number of common themes that emerged from the submissions and hearings regarding the challenges in infrastructure funding and provision in relation to major resource projects. These included:
the disadvantage faced by regional areas, and the consequent focus needed on regional infrastructure;
insufficient consideration of ‘soft’ infrastructure;
the lack of coordination between levels of government;
the unfair cost burden and long-term impact on local government, not only in providing infrastructure, but also in the maintenance of infrastructure provided by third parties;
concerns regarding the level of federal government investment, and the impact on state government investment; and
state government planning, investment and coordination.
There were also suggestions on how to improve the situation, including creating a process to prioritise infrastructure needs; improving funding arrangements through fast-track systems; instigating dedicated infrastructure funds or developer contributions; engaging the private sector; increasing government contributions; and providing relief for local government.
24 Department of Treasury and Finance, ‘State Infrastructure Strategy’, 6 September 2006. Available at: www.dtf.wa.gov.au/cms/tre_content.asp?ID=1397 Accessed on 7 November 2007.
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PUBLIC ACCOUNTS COMMITTEE
CHAPTER 2 FACTORS AND ARRANGEMENTS IMPACTING ON INFRASTRUCTURE FUNDING
2.1 Introduction
In some regards, the factors and arrangements impacting on infrastructure funding associated with major resource projects do not differ significantly from those impacting on the funding of any major infrastructure. What differentiates the focus of this Inquiry is the significance that infrastructure provision has for supporting major resource projects, as this infrastructure directly increases the economic development of Western Australia, provided projects proceed as anticipated. Nevertheless, the Committee recognises that the factors and arrangements described below are not all unique to Western Australia particularly the role of federal agencies reviewed in Chapter 2.3. However, these still have the potential to significantly influence the funding, coordination and maintenance of infrastructure in this state.
2.2 Agreements and legislation
Broadly speaking, the state government is responsible for setting royalty and administrative arrangements for land-based resource projects, and the commonwealth is responsible for levying taxes on resource projects in the waters under Australia’s jurisdiction, excluding the area belonging to the states.25 These arrangements, particularly with respect to offshore oil and gas developments, have evolved over time. A brief overview is provided here as it establishes the context for the current resource taxation regime and accounts for revenue flow to the commonwealth as well as to the state government.
(a) Offshore petroleum developments
The matter of commonwealth/state jurisdiction over offshore areas came to a head in the 1960s with the increasing prevalence of offshore resource developments. The commonwealth and states and the Northern Territory then negotiated an agreement which established joint responsibility over the exploration and development of offshore petroleum resources. This agreement was reflected in the Petroleum (Submerged Lands) Act 1967 (Cth), under which the relevant state Minister, in consultation with the commonwealth, was tasked with day-to-day administration of
25 Department of Industry, Tourism and Resources, ‘Australia’s Offshore Jurisdiction - Explanation of Terminology’, nd. Available at: www.industry.gov.au/content/itrinternet/cmscontent.cfm?objectID=364CB4CE-F5B2-48EC- 93C65B7F9326FC72 Accessed on 28 August 2007.
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offshore areas.26 27 The legislation failed however to resolve controversy surrounding the constitutional basis of the commonwealth’s claim to offshore areas.28
The early 1970s saw the commonwealth pursue greater control of offshore areas. Under the Whitlam Government, the Seas and Submerged Lands Act 1973 (Cth) proclaimed sovereignty over offshore areas including control of oil drilling and air space beyond the 3 mile (4.8km) State Waters limit.29 The subsequent Fraser Government saw a shift in federal policy towards ‘New Federalism’ and a more cooperative philosophy. The Offshore Constitutional Settlement agreed between the commonwealth and states in 1979 was intended to settle offshore constitutional issues.30 Under the Settlement, the power to impose taxation on oil and gas production was divided between the commonwealth and states/territories. The states were awarded title of land within the 3 mile limit and a common mining code was adopted with respect to petroleum regulation in submerged lands.31 Subsequent amendments to the Petroleum (Submerged Lands) Act 1967 (Cth) in 1980 and 1982 established a joint authority comprising the relevant commonwealth and state Ministers, with responsibility over certain offshore petroleum arrangements such as the granting and renewal of exploration, production and pipeline licences, although the commonwealth retained final say.32
From the late 1960s, the commonwealth received royalties and excise for offshore petroleum production. This taxation regime was largely replaced in 1987 by a Petroleum Resource Rent Tax (PRRT), a tax levied on 40 per cent of taxable profits from offshore areas except those areas covered by production licences granted on or before 1 July 1984. Under this provision, the North West Shelf was exempt and would remain subject to existing royalty arrangements.33 34 The special arrangements that apply to the North West Shelf are discussed further in Chapter 5.1(b).
26 Murray, R., (1991). From the edge of a timeless land. A history of the North West Shelf Gas Project. Allen & Unwin Pty Ltd, Sydney, p47. 27 Parliament of Australia Parliamentary Library, ‘Bills Digest No. 184 1999-2000’, Available at: www.aph.gov.au/Library/pubs/bd/1999-2000/2000bd184.htm Accessed on 17 April 2007. 28 Ibid. 29 South Australia Department of Primary Industries and Resources, nd. Available at: www.pir.sa.gov.au/pages/petrol/data/pgsa5/pgsa5_chapter2.pdf Accessed on 17 April 2007. 30 Department of Industry, Tourism and Resources, ‘Offshore Constitutional Settlement’, nd. Available at: www.industry.gov.au/content/itrinternet/cmscontent.cfm?objectid=50B84351-B0E3-9901- CA13FD66F81679C9&searchID=13986 Accessed on 13 December 2007. 31 Australian Petroleum Production and Exploration Association Limited, ‘Tax and Commercial’, nd. Available at: www.appea.com.au/index.php?option=com_content&task=blogcategory&id=118&Itemid=49 Accessed on 13 December 2007. 32 South Australia Department of Primary Industries and Resources, nd. Available at: www.pir.sa.gov.au/pages/petrol/data/pgsa5/pgsa5_chapter2.pdf Accessed on 17 April 2007. 33 Parliament of Australia Parliamentary Library, ‘Bills Digest No. 184 1999-2000’, Available at: www.aph.gov.au/Library/pubs/bd/1999-2000/2000bd184.htm Accessed on 17 April 2007. 34 Hon. J.C. Kerin, MP, Minister for Primary Industries and Energy, Parliament of Australia, House of Representatives, Parliamentary Debates (Hansard), 21 October 1987, p1215.
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Most offshore resource projects take place in areas under commonwealth control. In 2006-2007, there were 62 operating oil and gas fields in Western Australia, with the majority of exploration, investment and development taking place in offshore areas where the state government receives no revenue as this accrues instead to the commonwealth.35
(b) Land-based mineral developments
Under the Mining Act 1978, all minerals existing in their natural condition in the state, except that which was allocated to freehold title before 1 January 1899, is the property of the Crown.36 As such, a royalty is payable to the state government for mineral extraction and is paid into the state’s Consolidated Revenue Fund.37 The payment of royalties is prescribed by the Mining Act 1978 and associated regulations,38 as well as by State Agreement Acts. These are contracts between the state government and proponents of major resource projects that are negotiated for particular developments and are ratified by an Act of the State Parliament.39
While Agreements relate to particular developments and therefore usually contain certain project specific clauses, common features can include:
arrangements for ensuring security of title, for example, under the Mining Act 1978 or Land Administration Act 1997;
details of infrastructure provision by the proponents and the state government;
incentive arrangements and requirements for secondary processing obligations by the proponent (if applicable);
how development proposals are to be submitted and approved;
revenue payable to the state government via royalties and lease payments; and
terms under which the state government may terminate the Agreement.40
35 Department of Industry and Resources, ‘Western Australian Mineral and Petroleum Statistics Digest 2006-07’, 2007. Available at: www.doir.wa.gov.au/documents/StatisticsDigest/071259-06-07-StatsV3_2.pdf Accessed on 13 December 2007. 36 Section 9(1) Mining Act 1978. 37 Department of Industry and Resources, ‘Minerals and Petroleum’, nd. Available at: www.doir.wa.gov.au/mineralsandpetroleum/7DB949D169164DF8AE0CCE72753A425E.asp Accessed on 13 December 2007. 38 Division 5 Mining Regulations 1981. 39 Department of Industry and Resources, ‘State Agreement Acts’, nd. Available at: www.doir.wa.gov.au/aboutus/A98C862789A44114A9AC5D3DEB503354.asp Accessed on 13 December 2007. 40 Department of Industry and Resources, ‘State Agreements Overview’, nd. Available at: www.doir.wa.gov.au/documents/investment/State_Agreements_text_v2.pdf Accessed on 19 April 2007.
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The Minister for State Development, assisted by the Department of Industry and Resources (DoIR) is responsible for administering State Agreements on behalf of the state government. As at 21 November 2007, DoIR had 66 State Agreements under active administration.41
Total royalties received by the state government from mineral and petroleum producers in 2006- 2007 amounted to $2.09 billion. An additional $382 million comprised royalties collected on behalf of the commonwealth, for example from the North West Shelf project of which Western Australia receives a proportion.42 In 2006-2007, the state government received a total of $714 million in petroleum royalties. By comparison, in the same period the commonwealth received almost $1 billion in royalties, crude oil excise and PRRT revenues from projects in commonwealth waters off Western Australia, as well as from company tax receipts.43
2.3 Role and priorities of agencies in providing or facilitating infrastructure funding
The list of agencies and other organisations below is not meant to be an exhaustive review of public sector and other offices dealing with infrastructure, but rather to give a broad outline of major stakeholders in this area and indicate the complexity of negotiations necessary to provide economic and social infrastructure. Committee comment on the perceived adequacy of agencies and an assessment of their effectiveness will be elaborated on in subsequent chapters. Due to the change of federal government in November 2007, some commonwealth agencies have been replaced, or their programs altered. As most submissions and some evidence were received prior to this, the agencies’ former functions are noted, where relevant, as well as any subsequent changes.
(a) Federal
(i) AusLink
The aim of AusLink is to connect ‘transport performance outcomes to projected economic growth and development’ through the planning and funding of specific transport routes.44 It funds improvements to the 24 road and rail systems considered to be the primary freight corridors between the capitals and major regional centres, as identified in the five-year strategic plan for Australia’s road and rail network, the National Land Transport Plan.45 AusLink also provides separate funding for other local and regional roads that fall outside of the National Land Transport
41 Mr Peter Kiossev, General Manager Infrastructure Policy, Department of Industry and Resources, Transcript of Evidence, 21 November 2007, p3. 42 Department of Industry and Resources, ‘Western Australian Mineral and Petroleum Statistics Digest 2006-07’, 2007. Available at: www.doir.wa.gov.au/documents/StatisticsDigest/071259-06-07-StatsV3_2.pdf Accessed on 13 December 2007. 43 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, p3. 44 AusLink. Available at www.auslink.gov.au/ Accessed on 27 August 2007. 45 AusLink, Annual Report 2006-2006, 29 April 2007, piii, vi. Available at: www.auslink.gov.au/publications/reports/index.aspx Accessed on 30 October 2007.
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Plan. The current Plan ends in 2009, after which it is intended that another five-year plan will be put in place.
The Department for Planning and Infrastructure (see below) is responsible for negotiating with the Commonwealth about AusLink regarding strategic corridors and other matters concerning the Commonwealth funding of Western Australian roads.
(ii) Commonwealth Grants Commission
The Commonwealth Grants Commission (CGC) is a statutory authority and advisory body that makes recommendations to the federal government based on the terms of reference provided to it by the federal Minister for Finance and Administration.46 In practice, this means that the CGC recommends the level of funding to be provided to the states from GST revenue, taking into account the annual changes that occur in each state’s fiscal capacity. The CGC operates on a principle of horizontal fiscal equalisation, redistributing funds in order to ensure that all states have approximately an equal capacity to provide services to their populations. Indeed, in its 2005- 2006 Annual Report, the CGC states that under its outcome reporting framework, it only had one outcome - fiscal equalisation.47 Its method for calculating the relative return each state receives from the federal government is reviewed every five years, with the next review due to take place in 2010.
(iii) Area Consultative Committees
Area Consultative Committees (ACCs) are non-profit, community-based organisations which are funded by the federal government to create business and community networks in regional areas, with the aim of ‘finding local solutions to local problems’.48 The federal funding is expended on staff and on putting into action the aims of the National Charter of Area Consultative Committees and the Strategic Regional Plan.49 ACCs are intended to represent a range of stakeholders, and are a conduit for information on federal government programs and priorities into local communities. The Chair of each ACC is appointed by the Minister of the Department of Infrastructure, Transport, Regional Development and Local Government.
The incumbent federal government intends to change ACCs, although the exact form this will take is yet to be determined. The federal government has announced that ACCs will transition to become local Regional Development Australia (RDA) committees. The RDA network will take over from ACCs but is intended to have a broader role in terms of developing ‘strategic input into national programs to improve the coordination of regional development initiatives and [ensuring]
46 Commonwealth Grants Commission. Available at: www.cgc.gov.au/ Accessed on 27 August 2007. 47 Commonwealth Grants Commission, Annual Report 2005-2006. Available at www.cgc.gov.au/about_cgc/annual_report_-_200405 Accessed on 27 August 2007. 48 Area Consultative Committees, ‘About the Network’, 9 January 2008. Available at: www.acc.gov.au/about_the_network/index.aspx Accessed on 27 March 2008. 49 Ibid.
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that there is effective engagement with local communities’.50 The exact role of RDA committees will be determined following stakeholder consultation but it is intended for this to include the provision of advice to government on issues such as community infrastructure, and involve a closer relationship with the local government sector.51
(iv) Invest Australia
Invest Australia was an initiative of the former federal government designed to provide ‘prospective investors with a single point of contact within the Australian Government’.52 Its aims regarding major projects were to ensure that federal approvals were processed in a timely manner, to assist in ‘complex and extensive’ approvals processes, to demonstrate the commonwealth’s support of such investments, and to advise the federal government regarding impediments to major project investment.53 As a result of the change of federal government in November 2007, Invest Australia was replaced by the Global Opportunities Program.54
(b) State
(i) Department for Planning and Infrastructure
The Department for Planning and Infrastructure (DPI) has responsibility for planning, regulating and delivering economic and social infrastructure, and receives policy advice from the Western Australian Planning Commission (see below). The portfolio includes public transport, parks, freight, aviation and crown land.55 DPI is involved in identifying State Strategic Corridors for transport and liaising with AusLink in relation to these.
(ii) Western Australian Planning Commission
The Western Australian Planning Commission (WAPC) is a statutory body responsible for land use planning and development across the state, and operates with the support of the Department for Planning and Infrastructure. It is also responsible for strategic planning in response to government direction.56 It operates a number of separate committees, which are convened to look at specific issues and areas, including statutory committees such as the Infrastructure Coordinating
50 Hon. Anthony Albanese, MP, Minister for Infrastructure, Transport, Regional Development and Local Government, Parliament of Australia, House of Representatives, Parliamentary Debates (Hansard), 20 March 2008, pp62-63. 51 Ibid. 52 Invest Australia. Available at: www.investaustralia.gov.au/OurServices/MajorProjectFacilitation/ Accessed on 13 November 2007. 53 Ibid. 54 Department of Innovation, Industry, Science and Research, ‘Global Opportunities Program’, 15 February 2008. Available at: www.innovation.gov.au/go/Pages/default.aspx Accessed on 27 March 2008. 55 Department for Planning and Infrastructure. Available at: www.dpi.wa.gov.au/aboutus/705.asp Accessed on 27 August 2007. 56 Western Australian Planning Commission. Available at: www.wapc.wa.gov.au/About+us/default.aspx Accessed on 27 August 2007.
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Committee; major committees, such as the Environment and Natural Resources Committee; and District and Regional Planning Committees. The WAPC works closely with the Minister for Planning and Infrastructure, the Hon. Alannah MacTiernan, MLA, and the Department for Planning and Infrastructure.
(iii) Department of Treasury and Finance
The Department of Treasury and Finance (DTF) oversees the expenditure of public sector finances, and provides advice on the strategies and frameworks necessary to maintain the state’s economic and financial position.57 The Department is involved in reviewing CGC funding, which is due to be finalised by 2010, and is negotiating for stronger Commonwealth support for Western Australia. The state government’s capital works program, which delivers social and economic infrastructure, is coordinated by DTF, which receives and analyses submissions from public sector agencies and on this basis makes recommendations to the government.58 DTF is also responsible for developing the State Infrastructure Strategy in consultation with a wide range of stakeholders.
(iv) The Department of Industry and Resources
The role of the Department of Industry and Resources is to assist in the economic wellbeing of Western Australia by encouraging and assisting sustainable industrial development. In relation to the resources sector, DoIR facilitates mineral and petroleum exploration through processing approvals, encouraging investment, and developing links with trading partners, as well as facilitating the geological mapping of possible sites prior to formal investment.59 DoIR also has a key role in arranging for the collection of mineral and petroleum royalties that accrue both to the state and federal governments.
The Investment Facilitation Division within DoIR assumed the role of the Office of Major Projects from DoIR’s predecessor, the Department of Mineral and Petroleum Resources.60 A project manager from the Investment Division is assigned to work with proponents of major projects through the planning and implementation phases of the project. DoIR offers advice, assistance and guidance to proponents with respect to government approvals, and is supported by the Office of Development Approvals Coordination (see below).61
57 Department of Treasury and Finance. Available at: www.dtf.wa.gov.au/cms/tre_index.asp Accessed on 27 August 2007. 58 Mr Michael Court, Director, Asset Planning and Managements, Department of Treasury and Finance, Transcript of Evidence, 15 October 2007, p2. 59 Department of Industry and Resources, Annual Report 2006-2007, 27 September 2007, p6. Available at: www.doir.wa.gov.au/aboutus/D50D86E5355A4AF68F2B18D24EC4F6AF.asp Accessed on 29 October 2007. 60 Hon. Ken Travers, MLC, Parliamentary Secretary representing the Minister for State Development, Western Australia, Legislative Council, Parliamentary Debates (Hansard), 23 September 2004, p6424. 61 Department of Industry and Resources, ‘Project Approvals Processes’, 28 February 2008. Available at: www.doir.wa.gov.au/1130.aspx Accessed on 16 April 2008.
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(v) Department of the Premier and Cabinet
In relation to infrastructure provision, the role of the Department of the Premier and Cabinet (DPC) is presently limited to supporting the Office of Development Approvals Coordination (ODAC). ODAC is responsible for coordinating the approvals process across government for major projects, and in so doing complements services offered by DoIR.62 DPC also has a recently strengthened Intergovernmental Relations Unit, the role of which is to negotiate with federal agencies and the Council of Australian Governments (COAG) on issues relevant to Western Australia, particularly regarding the national reform agenda. The Unit also comprises a senior officer based in Canberra.63
(vi) Regional Development Council
The Regional Development Council is a peak body which advises the state government on regional development. Its membership comprises the chairs of the nine Regional Development Commissions (see below) and two local government representatives.64 Its Chair is independent.
(vii) Regional Development Commissions
Regional Development Commissions are statutory authorities that aim to promote social and economic development in the regions. The Commissions operate in the Gascoyne, the Great Southern, Goldfields-Esperance, the Kimberley, Mid-West, Peel, Wheatbelt, South West, and the Pilbara regions. The Development Commissions do not have dedicated funding, and are made up of representatives from local government, the community, and those appointed by the state’s Minister for Local Government.65
(c) Local governments
Local governments are statutory bodies that exist to provide services to the community.66 There are 142 local governments across Western Australia, employing 13,000 staff, and serving 1.76 million constituents who are represented by some 1,400 elected members.67 As mentioned in Chapter 1, local government has stewardship for nearly $13 billion worth of infrastructure, the majority of which is transferred from other agencies or businesses, such as developers.68 As at April 2007, local government was experiencing an infrastructure backlog equivalent to 14 per cent
62 Office of Development Approvals Coordination. Available at: www.odac.dpc.wa.gov.au/ Accessed on 3 December 2007. 63 Mr David Hatt, Chief Policy Adviser, Department of Premier and Cabinet, Transcript of Evidence, 15 October 2007, p8. 64 The Department of Local Government and Regional Development. Available at: www.dlgrd.wa.gov.au/RegionDev/RegionDevContacts/Council.asp Accessed on 30 October 2007. 65 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October, p11. 66 The Productivity Commission, ‘Assessing Local Government Revenue Raising Capacity: Issues Paper’, 18 May 2007. Available at: www.pc.gov.au/study/localgovernment/issuespaper Accessed on 3 December 2007. 67 Submission No. 8 from Western Australian Local Government Association, 20 April 2007, p2. 68 Ibid., p4.
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of the total value of its non-financial assets.69 The Productivity Commission’s May 2007 issues paper suggested that local governments raise funds primarily through council rates and sales of goods and services, including fees and charges imposed on services (37.3 per cent and 28.9 per cent of local government revenue respectively). Other income sources include grants and subsidies from other tiers of government, developer contributions and fines, and interest, although the Productivity Commission recognised wide variation in the ability of local governments in their capacity to raise funds.70 In Western Australia, the largest source of funding for local government, aside from rates, comes from financial assistance grants from the commonwealth.71
(i) Western Australian Local Government Association
The Western Australian Local Government Association (WALGA) is a private entity and peak industry body which advocates on behalf of local government.72 WALGA represents local government on a number of committees and taskforces dealing with infrastructure provision.
(ii) Department of Local Government and Regional Development
The Department of Local Government and Regional Development (DLGRD) is a state public sector agency which exists to develop the capacity of local governments and assist the social and economic development of regional communities.73 In relation to infrastructure provision, DLGRD administers the Regional Investment Fund, which provides funding for regional communities for a variety of purposes. The Fund provides for specific grants of between $100,000 and $5 million for infrastructure to improve services or access to services in regional areas.74
69 Ibid., p2. 70 The Productivity Commission, ‘Assessing Local Government Revenue Raising Capacity: Issues Paper’, 18 May 2007. Available at: www.pc.gov.au/study/localgovernment/issuespaper Accessed on 3 December 2007. 71 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, p2. 72 Western Australian Local Government Association. Available at: www.walga.asn.au/about Accessed on 3 December 2007. 73 Department of Local Government and Regional Development. Available at: www.dlgrd.wa.gov.au/Default.asp Accessed on 3 December 2007. 74 Department of Local Government and Regional Development. Available at: www.dlgrd.wa.gov.au/FinancialAssist/RIF.asp#RIFP Accessed on 3 December 2007.
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PUBLIC ACCOUNTS COMMITTEE
CHAPTER 3 CURRENT FUNDING ARRANGEMENTS FOR INFRASTRUCTURE PROJECTS
The Committee considered funding and other relevant arrangements for selected major infrastructure projects; in particular those it believed exemplified the imbalance between revenue benefits and fiscal costs to the state. The funding arrangements of six major infrastructure projects are reviewed below including the level of federal and state investment in, and control over, projects and the adequacy of those arrangements. In some cases, the Committee was able to view firsthand a number of the projects that were either operational or under development on the Burrup Peninsula, as well as the Ravensthorpe Nickel Project.
3.1 Ravensthorpe Nickel Project
Background
On 23 March 2004, BHP Billiton announced a commitment to develop the Ravensthorpe Nickel Project (RNP) and associated expansion of the Yabulu refinery in Queensland.75 BHP Billiton later revealed that it would proceed with a residential workforce for the project following commitments from the federal and state governments to assist with the delivery of community infrastructure in the region to support the additional population. According to BHP Billiton, a residential workforce model was chosen to take advantage of the proximity of the project to the existing communities of Hopetoun, Ravensthorpe and Esperance.76 This workforce model, as opposed to Fly-in/Fly-out (FIFO), was strongly favoured by both the state and federal governments.
Once complete, the US$2.2 billion77 project will comprise an open-cut mining operation, site infrastructure, utilities and beneficiation plant located at Bandalup Hill in the Shire of Ravensthorpe, 570km southeast of Perth and 155km west of Esperance. The project is anticipated to yield 35,000 tonnes per annum of nickel and 1,900 tonnes per annum of cobalt with output to be shipped to the expanded Yabulu refinery in Queensland. The three nickel laterite (ore) deposits at Ravensthorpe are anticipated to give the mine a 25-year operating life.78 79
75 BHP Billiton, ‘BHP Billiton Approves Ravensthorpe Yabulu Integrated Nickel Project’, 23 March 2004. Available at: www.bhpbilliton.com/bb/investorsMedia/news/2004/bhpBillitonApprovesRavensthorpeYabuluIntegratedNickelProject.js p Accessed on 14 December 2007. 76 BHP Billiton, ‘BHP Billiton Commits to Residential Workforce for Ravensthorpe Nickel Project’, 1 October 2004. Available at: www.bhpbilliton.com/bb/investorsMedia/news/2004/bhpBillitonCommitsToResidentialWorkforceFor RavensthorpeNickelProject.jsp Accessed on 20 February 2007. 77 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’. Available at: www.doir.wa.gov.au/Images/investment/Prospect_Sep_Dec07.pdf Accessed on 6 December 2007. 78 Access Economics, Investment Monitor, June 2006, p32. 79 BHP Billiton, ‘The Ravensthorpe Nickel Project and Yabulu Refinery Expansion Overview’, March 2004. Available at: www.bhpbilliton.com/bbContentRepository/News/RelatedContent/RYINOverviewPaper.pdf Accessed on 14 December 2007.
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The Ravensthorpe nickel mining and processing operation is now at an advanced stage of construction. Commissioning of the plant is occurring and the first shipment of product left Esperance in December 2007.80 The plant is anticipated to increase to full production over the next two years.81 Originally estimated during the planning stage to require a workforce of 300 employees, by late 2006, BHP Billiton had revised the RNP workforce estimate to 650 employees.82
Funding Arrangements
In order to facilitate funding and delivery of infrastructure essential to a local workforce for the RNP, a Memorandum of Understanding (MOU) was signed in October 2004 by the then State Development Minister, Hon. Clive Brown, MLA, and BHP Billiton. The MOU identifies core infrastructure and the state government agency or other entity responsible for construction or provision of that infrastructure. The MOU also enables the state government, through DoIR to coordinate and liaise with the entity or entities responsible for construction of each infrastructure item. At the time of signing, the state government committed $18 million in funding to the development of core infrastructure including:
an upgrade of essential Shire of Ravensthorpe services such as waste disposal and wastewater treatment;
the Hopetoun wastewater treatment scheme; and
education facilities in Hopetoun and Esperance.
A further $6.1 million was committed to upgrade the South Coast Highway raising the total state government contribution to $24.1 million.83 In addition to the $24.1 million state government contribution to infrastructure committed via the MOU, an additional $19 million was committed towards related infrastructure at the Port of Esperance and $11 million on public housing for the region, totalling $55 million.84 The Esperance Port Authority has since constructed a sulphur storage and handling facility at the Port in 2005-2006 to support the operations of the RNP at a
80 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/businessandindustry/Prospect_MARCH08.pdf Accessed on 28 March 2008. 81 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/Prospect_June07.pdf Accessed on 12 June 2007. 82 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Briefing, 3 August 2007. 83 Memorandum Ravensthorpe Nickel Project, signed between the State of Western Australia and Ravensthorpe Nickel Operations Pty Ltd, 1 October 2004. 84 Hon. Jim Lloyd, MP, Minister for Local Government, Territories and Roads, ‘Minister Clears Way for Ravensthorpe Road Funds’, Media Release and Fact Sheet, 11 January 2005.
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cost of $19 million.85 A further $21 million in 2005-2006 also went towards the construction of bulk storage facilities and a shore based gantry crane.86 While these will facilitate RNP operations, common users will also benefit from bulk storage facilities and a crane capable of handling containerised cargo.87
BHP Billiton obligations under the MOU comprised $9.5 million funding towards core infrastructure (primarily the new Ravensthorpe Airstrip) and up to $30 million towards residential land and housing for employee families relocating from outside the region.88 Ravensthorpe Airport was completed and opened in February 2005. The state government through the DPI contributed $350,000 via the Regional Airports Development Scheme.89 Acquisition of land and airport construction was co-funded by BHP Billiton as part of its $9.5 million infrastructure contribution, and managed by the Shire of Ravensthorpe.90 In light of revised workforce estimates in late 2006, BHP Billiton increased its investment in land and housing from $30 million to $180 million in order to facilitate a residential workforce for the RNP. A further $7 million of voluntary commitments has been made by BHP Billiton beyond the obligations of the MOU in order to strengthen communities within Hopetoun and, more broadly, within the Shire of Ravensthorpe. These include contributions towards child care, a Hopetoun business incentive scheme, commercial premises and doctor support.91
As well as detailing contributions from the state government and BHP Billiton, the MOU also noted the contribution by the commonwealth government of up to $10.8 million.92 There was apparent initial reluctance on the part of the federal government to contribute funding to the RNP. Federal Cabinet initially rejected a $23 million funding package,93 finally committing to $10.8 million. The federal government commitment was split between $6.5 million for roads and $4.29 million towards four community projects, specifically:
85 Department of Treasury and Finance, Western Australian Budget 2006-07, p733. Available at: www.dtf.wa.gov.au/cms/uploadedFiles/200607_13_Part_9_Esperance_Port_Authority.pdf Accessed on 21 February 2007. 86 Ibid. 87 Department of Local Government and Regional Development and Goldfields-Esperance Development Commission (July 2006), Goldfields-Esperance Economic Perspective, p17. Available at: www.dlgrd.wa.gov.au/Publications%5CDocs%5CEconomicPerspectives_goldfieldEsp.pdf Accessed on 21 February 2007. 88 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Briefing, 3 August 2007. 89 Department for Planning and Infrastructure, Annual Report 2004-05, p34. Available at: http://dpi.wa.gov.au/mediaFiles/Comm_AnnualReport2004_05wordfinal.doc Accessed on 21 February 2007. 90 Ravensthorpe Nickel Operations, Community Newsletter February 2005, Available at http://svc169.wic004tv.server- web.com/uploads/Newsletter%20Nickel%20Feb05.pdf Accessed on 20 February 2007. 91 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Briefing, 3 August 2007. 92 Memorandum Ravensthorpe Nickel Project, signed between the State of Western Australia and Ravensthorpe Nickel Operations Pty Ltd, 1 October 2004. 93 Western Australian Technology & Industry Advisory Council, Major Economic Developments in Practice, Available at: www.tiac.wa.gov.au/issues/definingissues-05.htm Accessed on 20 February 2007.
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A new Hopetoun Community Centre (to accommodate health consulting rooms and provide space for banking facilities);
A new Hopetoun co-located emergency services facility (to accommodate fire fighting, ambulance and sea search and rescue);
New services at Ravensthorpe Entertainment Centre; and
A new Hopetoun Rural Transaction Centre.94
The federal government contribution was conditional upon BHP Billiton establishing and retaining a residential workforce at the RNP. Funding for roads was initially to be provided via the Roads of National Importance funding category95, however this was subsequently incorporated into the AusLink Investment Programme 2004/05 - 2008/09.96 Construction of committed road projects is complete and all roads were opened in June 2006.97 Federal funding for community projects was provided under the Regional Partnerships Programme administered by the then federal Department of Transport and Regional Services.98
Committee Analysis
The Committee identified a number of issues concerning the adequacy of funding arrangements for the RNP, which can be summarised as follows:
A major infrastructure funding shortfall became evident in Hopetoun when building development had to cease because of the town’s inadequate sewerage system.99 The revised workforce estimate for the RNP and the larger than anticipated influx of employees and their families to Hopetoun were the basis of the strain. Under the MOU, the state government committed $5.2 million to the construction of a new wastewater treatment facility in Hopetoun. The estimated cost of delivering an appropriate facility is now approximately $30 million.100 The state government has given approval for the $15
94 Hon. Jim Lloyd, MP, Minister for Local Government, Territories and Roads, ‘Minister Clears Way for Ravensthorpe Road Funds’, Media Release and Fact Sheet, 11 January 2005. 95 Ibid. 96 Department of Transport and Regional Services, ‘Implementation of the AusLink National Land Transport Plan, Bilateral Agreement between the Commonwealth of Australia and the State of Western Australia 2004 - 2009’, Available at: www.auslink.gov.au/whatis/legislation/bilateral_agreements.aspx Accessed on 20 February 2007. 97 Department of Transport and Regional Services, Available at: www.auslink.gov.au/projects/ProjectSearch.aspx Accessed on 13 March 2007. 98 Department of Transport and Regional Services, ‘Regional Partnerships Programme Approved Grants’, Available at: www.regionalpartnerships.gov.au/partnerships/index.aspx Accessed on 21 February 2007. 99 Quinton, S., ‘Halt on Hopetoun Development’, Kalgoorlie Miner, 30 June 2007, p3. 100 Mr Stuart Taylor, CEO, Shire of Ravensthorpe, Briefing, 2 August 2007.
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million first stage of a new wastewater facility in Hopetoun to proceed, with the system anticipated to be commissioned in late 2008.101
The Shire of Ravensthorpe claims that the time lag between the demand and provision of infrastructure has led to short-term uncertainty over land development in Hopetoun. This has frustrated the development of commercial and industrial enterprises to support the community in Hopetoun. Of greater concern to the Shire however, is the reduction in the residential workforce in favour of FIFO. In response to infrastructure development delays, BHP Billiton has opted for a hybrid workforce comprising approximately 230 employee housing units in the Shire with the remainder consisting of FIFO from Perth, Bus-in/Bus- out from Esperance, and local employees with private housing. While this arrangement will be reviewed in mid-2008 and again in mid-2009, the Shire states that this leads to long-term uncertainty over housing and is far removed from the preferred scenario of a completely residential workforce.102
The MOU, as the infrastructure funding and delivery mechanism to support the RNP, failed to take into account prohibitively high electricity headworks charges in Ravensthorpe. Due to its location at the edge of the power grid, developers in Ravensthorpe incur a high headworks charge for triggering a network upgrade in addition to normal connection fees.103 The Shire of Ravensthorpe considered that delays in resolving the power issue had unnecessarily stalled development in the town.104 The state government recently announced an electricity headworks subsidy for remote edge-of-grid locations including Ravensthorpe. The $4 million four-year subsidy plan is anticipated to reduce headworks charges for residential blocks by up to 50 per cent and for industrial and light commercial developments by up to 70 per cent.105
There is an obvious disparity between the level of state government investment in infrastructure to support the RNP and that of the federal government even though the commonwealth stands to benefit significantly from the project. The commonwealth will reportedly receive seven times the amount of revenue from the RNP as the state.106 Furthermore, while the state government has increased its contribution in response to issues such as the need for an expanded wastewater treatment facility in Hopetoun, and the headworks subsidy, the federal government contribution of $10.8 million has remained
101 Hon. John Kobelke, MLA, (Minister for Water Resources), and Hon. Ljiljanna Ravlich MLC (Minister for Goldfields- Esperance), Approval for Hopetoun wastewater treatment plant, Media Statement, Government of Western Australia, Perth, 26 September 2007. 102 Submission No. 20 from Shire of Ravensthorpe, 2 August 2007, p14. 103 Painter, S., ‘Headworks program is slammed’, The Extra, 7 December 2007, p2. 104 Mr Stuart Taylor, CEO, Shire of Ravensthorpe, Briefing, 2 August 2007. 105 Hon. Francis Logan, MLA, (Minister for Energy), State to subsidise headworks electricity charges, Media Statement, Government of Western Australia, Perth, 29 August 2007. 106 Hon. Eric Ripper, MLA, Minister for State Development, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 20 September 2007, p5528.
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static. BHP Billiton has similarly significantly increased its contribution beyond the original obligations of the MOU.
The Shire of Esperance highlighted the need for a greater federal government contribution and drew the Committee’s attention to the road access corridor to the Esperance port. Activity at the port is already extensive as it handles regional exports however activity is expected to increase further once the RNP begins production in 2008. An upgrade of the access corridor is necessary to improve safety, local amenity and the efficiency of port- related heavy transport traffic.107 According to the Shire, the latest estimate for upgrading the access corridor is $115 million. The Shire contends that the federal government should contribute towards this cost (along with the state government) however AusLink does not cover access routes to ports, nor does AusLink cover any of the other major roads in the region.108
In order to fulfil MOU obligations, it was necessary for the Shire of Ravensthorpe to take responsibility for the implementation of the Ravensthorpe Airport, and apply federal funds to the development of four community buildings as well as local roads. This represented a huge responsibility for what was essentially, at that time, a small rural shire.109 Although the Shire had been consulted in the formulation of the MOU, it was not a formal signatory and the Committee concurs with BHP Billiton110 insomuch as local government should be a signatory and there should be greater support for local government in the execution of its role should the MOU pathway be pursued again.
A need has been identified for a coordinating agency/entity with greater powers. While DoIR assumed this role under the terms of the MOU, the Shire of Ravensthorpe considered that while DoIR was good at bringing the major players together, it lacked the authority to make people/agencies do things.111 Similarly, in its submission to the State Infrastructure Strategy, BHP Billiton stated that the years of planning within government agencies for community infrastructure at Ravensthorpe, although extensive, had highlighted the need for an empowered coordinator within government to manage agencies and ensure all agencies are aligned to overall government requirements.112 The Committee heard that less liaison and more actual managing was required and that ideally there should be a clear ‘go-to’ person in state government, perhaps within the Department of the Premier and Cabinet.113
107 Submission No. 21 from Shire of Esperance (Copy of Shire of Esperance Submission to Government of Western Australia State Infrastructure Strategy), 2 August 2007, p8. 108 Cr Ian Mickel, Shire President, Shire of Esperance, Briefing, 2 August 2007. 109 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Briefing, 3 August 2007. 110 Ibid. 111 Mr Stuart Taylor, CEO, Shire of Ravensthorpe, Briefing, 2 August 2007. 112 BHP Billiton Ltd, Submission to the Western Australian State Infrastructure Strategy (February 2006), pp19-20, Available at: www.dtf.wa.gov.au/cms/uploadedFiles/sis_sub_06_bhp_billiton.pdf Accessed on 20 February 2007. 113 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Briefing, 3 August 2007.
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An insufficient emphasis was placed on the development of soft infrastructure to support the RNP. Once again, in its submission to the State Infrastructure Strategy, BHP Billiton stated that the MOU with the state government focused on physical infrastructure, however as regional communities develop, soft infrastructure is critical to the ongoing sustainability of the community including but not limited to child care facilities, increased Police and ranger services, access to more than one doctor within the Shire of Ravensthorpe, and youth recreation facilities within the Shire. The submission suggested that a mechanism for delivering such infrastructure be explored.114 It is clear to the Committee that the MOU did not deal with all infrastructure requirements for the life of the project.
Further reinforcing the notion that insufficient provision was made within the MOU for the funding and implementation of soft infrastructure, BHP Billiton has made a further $7 million voluntary contribution for community building projects within the Shire of Ravensthorpe. According to BHP Billiton, the investment is an attempt to develop a community that is sustainable in the long-term and will survive beyond the 25 year life of the mine.115 While the items of major physical infrastructure agreed to under the MOU have been completed by the state government, BHP Billiton considers that it has had to take additional responsibility for soft and hard infrastructure external to the MOU:
…government, like private enterprise, should acknowledge that the job is not necessarily finished at the signing of an MOU three years before families arrive and that there should be a mindset and a willingness to finish the job by amending or adjusting the MOU once the families have arrived and meeting the expectation by doing the work which was, as a result of human nature, left out along the way. At the moment there is no ability to do that easily. In fact, BHP Billiton is filling in the holes or gaps in the social infrastructure - gaps that, in all fairness, could not have reasonably been foreseen but which actually resulted from the arrival of the families - because the government, within a fixed boundary portal of looking at it all, says, “Well, we have done our bit” when, in fact, the job is not finished because, in terms of building community capacity and cooperatively growing with government, adjustments have to be made once the families arrive.116
This element of approaching the company as a funding source of last resort was also reflected in comments to the Committee from the Shire of Ravensthorpe. The Committee heard how the Shire could not help but approach BHP Billiton to fund soft infrastructure when it could not obtain funding from state or federal governments, particularly when the company was seen to be contributing more to the development of soft infrastructure than anybody else.117
114 BHP Billiton Ltd, Submission to the Western Australian State Infrastructure Strategy (February 2006), p20, Available at: www.dtf.wa.gov.au/cms/uploadedFiles/sis_sub_06_bhp_billiton.pdf Accessed on 20 February 2007. 115 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Briefing, 3 August 2007. 116 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Transcript of Evidence, 2 April 2008, pp2-3. 117 Mr Stuart Taylor, CEO, Shire of Ravensthorpe, Briefing, 3 August 2007.
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3.2 Gorgon Gas Project
Background
Barrow Island, located off the Pilbara coast, has been an operating oil field since 1967. West Australian Petroleum (WAPET) secured mining leases over Barrow Island in 1966 with legislation passed the same year in State Parliament permitting petroleum activities in a Class A reserve. Chevron assumed ownership of WAPET in 2000. Oil production has continued on Barrow Island with current production at 9,000 barrels a day.118 Chevron is the majority stakeholder (50 per cent) and operator of the Gorgon Venture, together with Mobil Australia Resources Company Pty Ltd (25 per cent), and Shell Development (Australia) Pty Limited (25 per cent).
The Greater Gorgon gas fields, located 70km west of Barrow Island and 130km offshore west of Dampier (~1500km north of Perth), comprise a number of gas reserves that have been discovered over time since 1973.119 The gas fields hold an anticipated 40 trillion cubic feet of gas representing Australia’s largest known undeveloped gas resource.120 The Venture partners have proposed development of the Greater Gorgon gas fields which includes: the construction of subsea pipelines to transport natural gas to Barrow Island; construction of a gas processing facility on Barrow Island comprising two Liquefied Natural Gas (LNG) trains each with a capacity of 5 million tonnes per annum (mtpa) (recently scaled up - refer below); shipping facilities to transport LNG products to international markets; assessment of a domestic gas plant and pipeline to deliver gas to the mainland; and greenhouse gas management via carbon dioxide sequestration in a subterranean aquifer beneath Barrow Island, subject to technical and commercial viability. The proposal is anticipated to involve an estimated construction workforce of 3,000 and an operational workforce of 600.121 122 123 124
118 Chevron - Gorgon Project, Available at: www.gorgon.com.au Accessed on 21 February 2007. 119 Department of Industry and Resources, ‘Western Australian Oil and Gas Review 2006 (Revised Edition February 2007)’, pp58-59. Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/WA_Oil_Gas_Review_2006.pdf Accessed on 16 February 2007. 120 Chevron-Exxon Mobil, ‘Gorgon Project Overview’, Available at: www.gorgon.com.au Accessed on 21 February 2007. 121 Hon. Mark McGowan, MLA, (Minister for the Environment), Tough conditions imposed on Gorgon gas project, Media Statement, Government of Western Australia, Perth, 12 December 2006. 122 WA Department of Industry and Resources, ‘Western Australian Oil and Gas Review 2006 (Revised Edition February 2007)’, p59, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/WA_Oil_Gas_Review_2006.pdf Accessed on 16 February 2007. 123 Theobold, N., ‘The Gorgon Project - Fuelling the Future of the Asia Pacific Region’, 23rd World Gas Conference, Amsterdam 2006, p5, Available at: http://igs.nigc.ir/igs/STANDARD/IGU-2006/localhost/wgc/pdf/paper/add12639.pdf Accessed on 26 February 2007. 124 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/Prospect_March07.pdf Accessed on 7 March 2007.
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The state government and Venture partners signed an agreement to facilitate the establishment of the Gorgon gas project on 9 September 2003. The Gorgon Gas Processing and Infrastructure Project Agreement (‘the Agreement’) was ratified by State Parliament and exists as a Schedule to the Barrow Island Act 2003. The Agreement authorises restricted use of Barrow Island for situating infrastructure to support the gas project whereby the gas processing area is not to exceed 300 hectares out of the total Barrow Island area of 234 square kilometres. The Agreement defines conditions reflecting the environmental significance of Barrow Island and establishes timeframes for key milestones (time until expiration of reservations, deadline for submission of detailed proposals, Ministerial decisions etc).125
In December 2006, the then Minister for the Environment, Hon. Mark McGowan, MLA effectively approved the project by imposing strict environmental conditions and additional environmental protection measures, which were committed to by the Venture partners.126 The state government signed off on environmental conditions and granted final approval in September 2007.127 Federal environment approval for the project was granted in October 2007.128
Increasing construction costs and the need to remain internationally competitive reportedly prompted the Venture partners to investigate whether production capacity could be increased to offset costs.129 The project scope was recently scaled up from two 5 mtpa LNG trains to three 5 mtpa trains. The additional LNG train will be built within the approved 300 hectare development envelope and Chevron, as operator of the Gorgon Venture, has undertaken to work with the government to ‘secure approvals for the additional LNG train, begin engineering and design work on the project, reconfirm supply tenders and contracts and expand the capacity of the Project team’.130 Chevron has since requested formal advice on the level of environmental assessment required to permit a third LNG train within the same development area.131
The Venture partners initially quoted the project cost at $11 billion.132 While this has not been officially updated, current estimates place the project cost at between $15 billion and $20 billion.133 The Venture partners have abandoned a 2010 deadline for commencing shipments
125 Schedule 1, Barrow Island Act 2003. 126 Hon. Mark McGowan, MLA, (Minister for the Environment), Tough conditions imposed on Gorgon gas project, Media Statement, Government of Western Australia, Perth, 12 December 2006. 127 Hon. David Templeman, MLA, (Minister for the Environment), Final Approval for Gorgon gas project, Media Statement, Government of Western Australia, Perth, 7 September 2007. 128 Hon. Ian McFarlane, MP, (Minister for Resources), Gorgon Gas Development Gets Green Light, Media Release, 10 October 2007. 129 Phaceas, J., ‘Gorgon eyes gas boost to beat costs blowout’, The West Australian, 10 March 2007, p69. 130 Chevron-Exxon Mobil, ‘Gorgon Project Update - Issue 15’, February 2008. Available at: www.gorgon.com.au/06- news/newsletters/ProjectNewsletter-Feb0812.pdf Accessed on 27 March 2008. 131 Wilson, N., ‘Gorgon LNG project set to test Chevron’s mettle’, The Australian, 17 March 2008, p32. 132 Chevron-Exxon Mobil, ‘Gorgon Project Overview’, Available at: www.gorgon.com.au Accessed on 21 February 2007. 133 ‘Howard rules out Gorgon royalties for WA’, The West Australian (Online Edition), 21 February 2007, Available at: www.thewest.com.au/defaultaspx?MenuID=145&ContentID=21930 Accessed on 27 February 2007.
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however anticipate production will commence in time to take advantage of favourable market conditions which will last until at least 2015.134 Recent media reports indicate that Chevron will complete engineering designs in 2009 and a final investment decision may be delayed until 2010.135
Funding Arrangements
As the Gorgon project is still at the design stage and has not received the final go ahead from the proponents, there is limited evidence to suggest that any serious infrastructure commitments have yet been made. Apart from infrastructure relating to the existing Barrow Island oil operations, no new infrastructure associated with the proposed LNG operation has been developed. The Australian Petroleum Production and Exploration Association (APPEA) reports that the Gorgon Venture partners will supply the project’s own infrastructure (presumably on Barrow Island) including: a construction camp and mess facilities to cater for up to 3300 people; water supply, treatment and disposal facility; Materials Offloading Facility; communications; administration and maintenance facilities; power generation and supply; LNG storage and load out facilities; an extended airport; and medical facilities/fire station.136
The Agreement favours the minimisation of environmental harm through avoiding duplication of services, facilities and infrastructure. Under the Agreement, Venture partners are required in their planning and preparations for gas processing developments on Barrow Island to ‘take into account and make provision as far as practicable for use and sharing of services, facilities and infrastructure’ (i.e. existing facilities and infrastructure associated with oil production). The Venture partners and state government are required to cooperate and consult on these matters and take into account among other things, state government policies, and any commercial requirements the Venture partners may have.137
The anticipated expansion of the workforce as a result of the project has obvious ramifications for infrastructure including the need for water, power, and accommodation, as well as social infrastructure such as education, health, policing and community facilities. The Agreement requires the Venture partners to submit detailed proposals to the Minister for State Development on or before 31 December 2008 with regard to the construction or provision of among other things, water supply, power supply, accommodation for a construction and permanent workforce, and airport facilities. A Social Impact Management Plan is required to detail ‘education, health
134 MacDonald-Smith, A., ‘Gorgon will be ready in time to reap LNG rewards, says Chevron’, The West Australian, 5 April 2008, p68. 135 Wilson, N., ‘Gorgon LNG project set to test Chevron’s mettle’, The Australian, 17 March 2008, p32. 136 Australian Petroleum Production and Exploration Association, ‘Submission to the State Infrastructure Strategy (February 2006)’, p10, Available at: www.appea.com.au/PolicyIndustryIssues/documents/policysubmissions/SubmissiontoStateInfrastructureStrategy.pdf Accessed on 22 February 2007. 137 Clause 5(1) Schedule 1, Barrow Island Act 2003.
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and policing services and community facilities’. The location and area of such facilities and infrastructure is to be specified within the proposals.138
Committee Analysis
The Gorgon project is still at the engineering and design stage. Until the project is fully committed and the details of requisite infrastructure are known, it is not possible to assess the adequacy of infrastructure arrangements. While the Venture partners have committed to developing the physical infrastructure associated with the project, the ramifications for social infrastructure in particular are yet to be determined and the impact, if any, the sizeable workforce might have on facilities in existing regional centres in the Pilbara. This is especially pertinent given that the project is expected to create 6,000 direct and indirect jobs, 1,700 of which will be based in Western Australia.139
The Committee is aware of the disparity between revenues that will go to the commonwealth compared to the state. The project area is situated within commonwealth waters and as such all royalties will go to the federal government. The federal government is anticipated to benefit from company tax and PRRT to the order of approximately $17 billion over the lifetime of the project.140 In net present value terms, it is anticipated that the commonwealth will reap $11 billion, other states will receive $3 billion following redistribution by the Commonwealth Grants Commission, and Western Australia will benefit by $300 million.141
The previous federal government ruled out sharing any revenues with the state if the project went ahead.142 However, the incumbent federal government pledged that if elected, it would establish a Western Australian Infrastructure Fund. This would involve setting aside 25 per cent of PRRT revenue from the Gorgon project so that once fully operational, the fund would return up to $100million a year to Western Australia to be spent on infrastructure programs. The Hon. Kevin Rudd, MP, at that time Leader of the Opposition, stated that revenues could be sourced from the Pluto project if the Gorgon gas development was delayed.143 As the PRRT is a profit-based tax, the Committee is aware that it may be many years before the commonwealth derives a revenue stream from either the Gorgon or Pluto projects, and therefore it would be some time before the state might benefit from a commonwealth infrastructure fund. This matter is discussed further in Chapter 5.1.
138 Ibid., Clause 7(1). 139 Chevron-Exxon Mobil, ‘Gorgon Project Overview’, Available at: www.gorgon.com.au Accessed on 21 February 2007. 140 Theobold, N., ‘The Gorgon Project - Fuelling the Future of the Asia Pacific Region’, 23rd World Gas Conference, Amsterdam 2006, p3, Available at: http://igs.nigc.ir/igs/STANDARD/IGU-2006/localhost/wgc/pdf/paper/add12639.pdf Accessed on 26 February 2007. 141 Hon. Eric Ripper, MLA, Treasurer, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 28 November 2007, p7948. 142 ‘Howard rules out Gorgon royalties for WA’, The West Australian (Online Edition), 21 February 2007, Available at: www.thewest.com.au/defaultaspx?MenuID=145&ContentID=21930 Accessed on 27 February 2007. 143 Hon. Kevin Rudd, MP, (Leader of the Opposition), Securing WA’s Infrastructure Fund, Media Statement, Australian Labor Party, 2 August 2007.
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3.3 Burrup Fertilisers
Background
In 2001, the Oswal Group (as majority (70 per cent) stakeholder in Burrup Fertilisers Pty Ltd (BFPL) along with Yara International (30 per cent)) announced that it would establish an ammonia plant on a 72 hectare site adjacent to the North West Shelf Venture gas processing facilities on the Burrup Peninsula144, representing the largest ever Indian investment in Australia.145 The Burrup Peninsula is located approximately 25km northwest of Karratha and 1500km north of Perth. The project was the key initiator of the state government’s Burrup Infrastructure Package comprising the development of common-user infrastructure intended to assist Burrup Fertilisers and attract additional operations to the region.146 Construction of the plant commenced in April 2003 with the official opening taking place on 19 April 2006147 and the first shipment of ammonia from Dampier Port occurring on 12 June 2006.148
The Burrup Fertilisers plant is the largest single train ammonia plant in the world and has been designed with an annual production capacity of 760,000 tonnes of liquid ammonia, representing 6 per cent of global ammonia production. The estimated 2,200 tonnes per day of ammonia produced is to be exported to Asian growth regions to provide feedstock for fertiliser production.149 150 151 It is estimated that annual export revenues will be in excess of $200 million.152
The plant is the first to undertake downstream processing of natural gas from the North West Shelf with LNG feedstock to be provided over the life of the plant by the Harriet Joint Venture, comprising Apache Energy Limited, Kufpec Australia Pty Ltd and Tap Oil Limited.153 The plant
144 ‘Burrup Fertilisers ammonia plant officially opened’, Fertilizer Focus, May/June 2006, Available at: www.fmb- group.co.uk/downloads/p148-62-63-Burrup.pdf Accessed 1 March 2007. 145 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/Prospect_Sept_06.pdf Accessed on 6 March 2007. 146 ‘Progress Update on Burrup Fertilisers’ Ammonia Plant’, Pilbara News, 22 February 2006, p7. 147 ‘Burrup Fertilisers ammonia plant officially opened’, Fertilizer Focus, May/June 2006, Available at: www.fmb- group.co.uk/downloads/p148-62-63-Burrup.pdf Accessed on 1 March 2007. 148 ‘AUD $700 million liquid ammonia plant on Burrup Peninsula’s North West Shelf’, The West Australian, 23 June 2006, p2 Supplement. 149 Ibid. 150 ‘Burrup Fertilisers ammonia plant officially opened’, Fertilizer Focus, May/June 2006, Available at: www.fmb- group.co.uk/downloads/p148-62-63-Burrup.pdf Accessed on 1 March 2007. 151 Engineers Australia Western Australia Division, ‘Burrup Ammonia Project’, Available at: www.wa.engineersaustralia.org.au/exaw/entrants.html Accessed on 1 March 2007. 152 Mr Hemant Deshmukh, General Manager Operations, Burrup Fertilisers Pty Ltd, Briefing, 31 July 2007. 153 Chemlink Australia Pty Ltd - Western Australia, ‘Burrup Fertilisers - ammonia project’, Available at: www.chemlink.com.au/wachem.htm Accessed on 28 February 2007.
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is anticipated to have an operating life of at least 25 years154, and currently has an operational workforce of 85 employees based in Karratha.155 BFPL was the first (and as yet, only) company to commit to establishing on the Burrup Peninsula under the state government’s Burrup Infrastructure Package.156
Funding Arrangements
In December 2002, the then Premier, Hon. Geoff Gallop, MLA, announced the go ahead of the Burrup Fertilisers project and its triggering of the state government’s multi-user infrastructure package for the Burrup Peninsula.157 Originally budgeted for $137.6 million, the cost of delivering the Burrup Infrastructure Package was revised to over $180 million in December 2003 as a consequence of unanticipated costs associated with developing the port facilities at Dampier.158
Capital investment in the project by BFPL to date has amounted to $630 million with an investment of $1 billion for a natural gas supply over the life of the project. This capital expenditure has covered the cost of developing the plant including ammonia production and storage units and utilities to support the ammonia plant.159
The state government Burrup Infrastructure Package includes upgrading the Port of Dampier, new and realigned roads, the establishment of multi-user service corridors, and inlet and outlet pipes for seawater desalination.160 The rationale behind the state government’s multi-user infrastructure package was that it would not only directly assist Burrup Fertilisers as the first users to benefit from the bulk liquids facility at Dampier Port for example, but it would also enhance the project- ready status of industrial lots for other prospective users.161 More specifically, the breakdown of state government expenditure under the Burrup Infrastructure Package is as follows:
154 Australian Government Invest Australia, Available at: www.investaustralia.gov.au/index.cfm?menuid=D0F749DF-5056- BE4F-DC6219ACA77823D5&setLanguage=IN Accessed on 28 February 2007. 155 Mr Hemant Deshmukh, General Manager Operations, Burrup Fertilisers Pty Ltd, Briefing, 31 July 2007. 156 ‘AUD $700 million liquid ammonia plant on Burrup Peninsula’s North West Shelf’, The West Australian, 23 June 2006, p2 Supplement. 157 Hon. Geoff Gallop, MLA, (Premier of Western Australia), World’s biggest ammonia plant to be built in Western Australia, Media Statement, Government of Western Australia, Perth, 19 December 2002. 158 King, D., and Shine, K., ‘Burrup budget blows out by $50m’, The Australian, 29 December 2003, p4. 159 Mr Hemant Deshmukh, General Manager Operations, Burrup Fertilisers Pty Ltd, Briefing, 31 July 2007. 160 Australian Government Invest Australia, Available at: www.investaustralia.gov.au/index.cfm?menuid=D0F749DF-5056- BE4F-DC6219ACA77823D5&setLanguage=IN Accessed on 28 February 2007. 161 WA Department of Industry and Resources Annual Report 2005-06, p10. Available at: www.doir.wa.gov.au/documents/aboutus/AnnualReportv3.pdf Accessed on 1 March 2007.
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Bulk Liquids Berth $75.6 million162
Seawater supply scheme $67 million163
Service corridor $14.5 million164
An east-west service corridor on the Burrup Peninsula was completed in January 2004. The 4.3km corridor links the industrial precincts on the Burrup Peninsula to the Dampier Port and enables the movement of products from up to four gas-to-liquids projects to the port.165 The Bulk Liquids Berth at Dampier Port was completed and opened in December 2005 with the intention of facilitating exports. Construction of the berth included a new access road, extension of the service corridor, and dredging of the channel and turning basin.166
Development of the seawater supply scheme included a seawater supply pipeline, return brine disposal pipeline, and associated infrastructure.167 A separate component of the water supply scheme involved construction of a desalination plant on the Burrup Fertilisers site. Under a $24 million commercial agreement with BFPL, the Water Corporation agreed to Build, Own and Operate the desalination plant.168
Committee Analysis
The Committee identified a number of issues concerning the adequacy of funding arrangements for the Burrup Fertilisers project, which can be summarised as follows:
The federal government did not contribute funding towards infrastructure associated with the Burrup Fertilisers project. Federal assistance was limited to granting the project Major Project Facilitation status. As a component of the then federal government’s Invest Australia scheme, Major Project Facilitation (MPF) provided investors with information,
162 Hon. Alannah MacTiernan, MLA, (Minister for Planning and Infrastructure), Export capacity at Dampier Port gets huge boost, Media Statement, 8 December 2005. 163 Burrup Fertilisers Pty Ltd, ‘Pipes promise fresh water’ (15 October 2003), Available at: www.bfpl.com.au/news.php?id- 27 Accessed on 1 March 2007. 164 Burrup Fertilisers Pty Ltd, ‘Corridor a lure for investors’ (21 January 2004), Available at: www.bfpl.com.au/news.php?id-27 Accessed on 1 March 2007. 165 Ibid. 166 Hon. Alannah MacTiernan, MLA, (Minister for Planning and Infrastructure), Export capacity at Dampier Port gets huge boost, Media Statement, 8 December 2005. 167 Burrup Fertilisers Pty Ltd, ‘Assured water supplies for the Burrup’ (22 December 2003), Available at: www.bfpl.com.au/news.php?id-27 Accessed on 1 March 2007. 168 Water Corporation, ‘Water connected to Burrup Fertilisers’ site’ (9 May 2003), Available at: www.watercorporation.com.au/m/media_detail.cfm?id=2912 Accessed on 2 March 2007.
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advice and support with regard to securing necessary government approvals for projects with strategic national significance.169
Federal offers of financial assistance for common-user infrastructure were made contingent on a number of other proposals proceeding on the Burrup Peninsula. As a consequence of these proposals failing to proceed, funding did not materialise. Some examples include:
- The $2 billion Methanex methanol project which was offered $85 million federal assistance to locate on the Burrup Peninsula. Assistance was specifically targeted at a 2 mtpa plant, however, when Methanex scaled down its proposal, the offer of federal assistance was not renewed and the proposal was subsequently withdrawn by the proponent.170 171
- The federal government offered $35.4 million for the development of common-user infrastructure on the Burrup Peninsula of which $8 million would complement the state government’s infrastructure package and the remainder would assist the establishment of GTL Resources’ $700 million methanol project. This proposal was withdrawn by the proponent.172 173
The Committee considers this is indicative of the flawed approach taken by the federal government, which was based on supporting individual projects on a case-by-case basis. The inability of the federal government at the time to ‘pick winners’ led to the withdrawal of offers of financial assistance for infrastructure, the costs of which then had to be met by the state government and BFPL.
The commitment of BFPL to pursuing an ammonia plant triggered the expenditure of approximately $160 million of the state government’s Burrup Infrastructure Package.174 DTF states that the remaining $24 million will be committed if a second project is commenced.175 There is currently a limited likelihood however of other downstream processing ventures establishing on the Burrup Peninsula in the short-term. Burrup Fertilisers has been only one of a number of downstream gas processing projects mooted for the Burrup Peninsula to reach fruition. Other proposals including Methanex
169 Australian Government Department of Industry, Tourism and Resources, Available at: www.industry.gov.au/content/sitemap.cfm?objectID=48A4EE1F-20E0-68D8-ED4283D5D3ED5670 Accessed on 23 March 2007. 170 Wilson, N., ‘Infrastructure holds back development’, The Australian, 20 August 2005, p4. 171 Hon. C.M. Brown, MLA, Minister for State Development, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 14 October 2003, p11908 - 11909. 172 Hon. Ian Macfarlane, MP, (Federal Minister for Resources), Major Infrastructure Investment in Western Australia, Media Release, 9 October 2003. 173 Chemlink Pty Ltd., Available at: www.chemlink.com.au/wachem.htm#March 2002 GTL Accessed on 7 March 2007. 174 WA Department of Industry and Resources Annual Report 2005-06, p10. Available at: www.doir.wa.gov.au/documents/aboutus/AnnualReportv3.pdf Accessed on 1 March 2007. 175 WA Department of Treasury and Finance, Discussion Paper on Commonwealth-State relations, April 2006, p36.
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(methanol), GTL Resources (methanol), Syntroleum (synthetic fuels), Plentex Ltd (ammonia), and DME International (dimethyl ether) were withdrawn or abandoned. The rising costs of construction and LNG have been identified as significant impediments to attracting value adding downstream producers such as these to the Burrup, but there is still potential for, and interest from, LNG processing developments.176 177
BFPL advised that it was investigating the feasibility of an additional plant to produce ammonium nitrate or urea.178 The Oswal Group earlier indicated that a failure to secure long-term gas supplies in Western Australia could threaten its plans to construct a new plant near the existing Burrup Fertilisers plant.179 The Economic Regulation Authority (ERA) released a Discussion Paper on 13 June 2007, which summarised findings of a consultation process undertaken by the ERA with 30 organisations comprising gas users, shippers, producers and pipeline owners as well as relevant government agencies. The paper highlights concerns among many stakeholders about the gas supply situation, particularly the failure of gas producers to offer long-term contracts. In some cases this is considered to be a consequence of gas producers not being interested in small contracts. Gas producers commented however, that uncertainty about future gas field development costs due to current large cost increases and uncertainty regarding future gas prices were the reasons for tending towards short-term supply contracts.180
The Committee is cognisant that further industry expansion on the Burrup Peninsula by Burrup Fertilisers is not being limited by infrastructure but rather by access to sufficient domestic gas supplies to sustain a viable downstream gas processing industry. What concerns do exist about infrastructure relate to the adequacy of social infrastructure in Karratha to support an expanded workforce should another project be pursued.181
3.4 Burrup Gas Processing Developments
Background
Burrup gas processing developments includes the North West Shelf Venture (NWSV) LNG project, which comprises six equal participants: BHP Billiton Petroleum (North West Shelf) Pty Ltd; BP Developments Australia Pty Ltd; Chevron Texaco Australia Pty Ltd; Japan Australia LNG (MIMI) Pty Ltd; Shell Development (Australia) Pty Ltd; and Woodside Energy Ltd (Operator). Gas is sourced from the Carnarvon Basin, 130km offshore northwest of Karratha and processed onshore at the NWSV facility on the Burrup Peninsula, approximately 25km northwest
176 ‘Burrup Fertilisers ammonia plant officially opened’, Fertilizer Focus, May/June 2006, Available at: www.fmb- group.co.uk/downloads/p148-62-63-Burrup.pdf Accessed 1 March 2007. 177 Mentiplay, M., ‘Gas costs key for Burrup’, WA Business News, 27 April 2006, p6. 178 Mr Hemant Deshmukh, General Manager Operations, Burrup Fertilisers Pty Ltd, Briefing, 31 July 2007. 179 Drummond, M., ‘Gas shortage may kill $1b urea plant’, The West Australian, 16 June 2007, p1. 180 Economic Regulation Authority (June 2007), ‘Discussion Paper: Gas Issues in Western Australia’, p5. 181 Mr Hemant Deshmukh, General Manager Operations, Burrup Fertilisers Pty Ltd, Briefing, 31 July 2007.
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of Karratha and 1500km north of Perth. Also included in this discussion is the Pluto LNG project, operated by Woodside Energy Ltd, with gas sourced from the Pluto and Xena gas fields 190km offshore northwest of Karratha and intended for processing on the Burrup Peninsula at a separate facility to that of the NWSV.
North West Shelf LNG
The North West Shelf LNG plant on the Burrup Peninsula was commissioned in July 1989 and currently comprises four liquefaction trains with a total annual LNG processing capacity of 11.9 million tonnes, four 65,000m3 storage tanks and a dedicated LNG loading jetty.182 Construction of a fifth train commenced in 2005 with commissioning anticipated for mid-2008. First exports of LNG from the fifth train are anticipated for the final quarter of 2008.183 With a processing capacity of 4.4 mtpa of LNG, on completion of the fifth train the production capacity of the NWSV plant will increase to up to 16.3 mtpa, making the NWSV one of the largest single LNG production facilities in the world.184 185
Pluto LNG
The Pluto gas field was discovered in April 2005 and was followed by discovery of the smaller Xena gas field in September 2006. The combined Pluto and Xena gas fields constitute a resource of approximately 5 trillion cubic feet of gas. Woodside proposes to develop LNG processing facilities on the Burrup Peninsula between the existing NWSV gas plant and the Dampier Port. In December 2006, Woodside committed up to $1.4 billion for long lead-time items and site preparation. The Woodside board committed to proceeding with the project in July 2007 and approved additional funding for development representing a total investment of $12 billion.186 187 188
182 WA Department of Industry and Resources, Western Australian Oil and Gas Review 2006 (Revised Edition February 2007), p47, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/WA_Oil_Gas_Review_2006.pdf Accessed on 16 February 2007. 183 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/Prospect_March07.pdf Accessed on 7 March 2007. 184 WA Department of Industry and Resources, ‘Western Australian Oil and Gas Review 2006 (Revised Edition February 2007)’, p48, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/WA_Oil_Gas_Review_2006.pdf Accessed on 16 February 2007. 185 Wilson, N., ‘NW Shelf’s faith in fifth train pays’, The Australian, 22 December 2006, p17. 186 Woodside Energy Ltd., ‘Pluto Project Approval. Announcement 27 July 2007’, Available at: www.woodside.com.au/NR/rdonlyres/62E47F66-2012-43DB-A88D-A077329FE880/0/PlutoProjectApproval PresentationPack.pdf Accessed on 3 January 2008. 187 Woodside Energy Ltd., ‘Funding Approval for Pluto Long Lead Items. Announcement 8 December 2006’, Available at: www.woodside.com.au/NR/rdonlyres/338E7E3C-4F29-4ACF-83E0-9DF3B2BC9A30/0/FundingapprovalforPlutolong leaditems8December2006.pdf Accessed on 3 January 2008. 188 Woodside Energy Ltd., ‘Woodside Approves Pluto LNG Project. Announcement 27 July 2007’. Available at: www.woodside.com.au/NR/rdonlyres/26F38084-9995-4552-A428-DEA4301751EB/0/WoodsideApprovesPlutoLNG Project27July2007.pdf Accessed on 3 January 2008.
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Despite significant controversy surrounding the impact of the proposal on Aboriginal rock art, Woodside commenced works on ‘Industrial Site A’ on the Burrup Peninsula in January 2007 with state government approval and Woodside’s own undertaking to ensure heritage sites are avoided where possible.189 190 In February 2007, the Minister for Indigenous Affairs, Hon. Michelle Roberts, MLA, granted approval for Woodside to develop the adjacent ‘Industrial Site B’ for the Pluto project subject to conditions intended to protect Aboriginal sites of high significance.191 The full Pluto proposal comprises an offshore production system, offshore platform, 180km pipeline to shore, onshore gas processing plant, storage facilities and export jetty. Conditional environmental approval was granted by the state government in August 2007192 followed by federal environmental approval in October 2007.193
Construction work officially commenced in November 2007. The first phase of development will include a single LNG production train, with an estimated production of 4.3 mtpa. First LNG exports are scheduled to take place in 2010, with the total life of the project estimated to exceed 20 years.194 195 196 197 Approximately $300 million of Woodside’s overall investment in the project has been committed to developing additional infrastructure which will enable the onshore facility to be expanded for other Woodside or third party gas, potentially facilitating operation of the plant under an open-access arrangement. Woodside has already commenced studies into potential expansion of the onshore processing facility by the addition of a second and third train.198
189 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/Prospect_March07.pdf Accessed on 7 March 2007. 190 ‘Woodside kick starts Pluto’, Pilbara News, 17 January 2007, p8. 191 Hon. M.H. Roberts, MLA, Minister for Indigenous Affairs, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 27 February 2007, p39 - 40. 192 Hon. David Templeman, MLA, (Minister for the Environment), Green light for Pluto LNG project, Media Statement, Government of Western Australia, Perth, 23 August 2007. 193 Department of the Environment and Water Resources, Approval decision to develop and operate the Pluto gas field (EPBC 2006/2968), 12 October 2007. Available at: www.environment.gov.au/epbc/notices/assessments/2006/2968/approval-decision.pdf Accessed on 3 January 2008. 194 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/Prospect_March07.pdf Accessed on 7 March 2007. 195 Hon. M.H. Roberts, MLA, Minister for Indigenous Affairs, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 27 February 2007, p39 - 40. 196 Woodside Energy Ltd., ‘Pluto LNG Development Fact Sheet’, Available at: www.woodside.com.au/NR/rdonlyres/12D8DA05-5DD6-4851-872D-4B380EC59AA6/0/PlutofactsheetProjectoverview .pdf Accessed on 8 March 2007. 197 Woodside Energy Ltd., ‘Pluto LNG Project - Project Approval Frequently Asked Questions’, Available at: www.woodside.com.au/NR/rdonlyres/OFE67E1B-5F23-4EC3-A6BB-5878OC454CA5/0/Pluto_LNG_Project_Project _Approval.pdf Accessed on 3 January 2008. 198 Woodside Energy Ltd., ‘Woodside Approves Pluto LNG Project. Announcement 27 July 2007’, Available at: www.woodside.com.au/NR/rdonlyres/26F38084-9995-4552-A428-DEA4301751EB/0/WoodsideApprovesPlutoLNG Project27July2007.pdf Accessed on 3 January 2008.
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Funding Arrangements
In both the NWSV and Pluto LNG projects, the proponent/s are responsible for supplying all project related (hard) infrastructure.
North West Shelf LNG
The North West Gas Development (Woodside) Agreement Act 1979 as amended from time to time applies to the North West Shelf project. The Agreement between the state government and the NWSV covers responsibilities for the provision and maintenance of infrastructure including public roads, power, airport, water supply, and township and housing. With regard to the latter, the NWSV partners are responsible for providing accommodation for their workforce in Karratha or elsewhere as determined under the Agreement. The state government is responsible for providing any school, hospital and police facilities of a permanent nature. In consultation with the Minister and local authority, the NWSV partners are also required to assist with funding ‘appropriate community recreation, civic, social and commercial amenities’ required for their workforce.199
Over the life of the development, the NWSV is estimated to have contributed more than $300 million to social and economic infrastructure in and around Karratha including the construction of a public wharf, marine supply base, heliport and roads, and contributions to schools, the hospital, theatre, community centre and other recreational facilities.200
Pluto LNG
Issues such as housing/accommodation needs for the proposed Pluto workforce and related pressures on existing health and education services and roads are covered in a Social Impact Study and Management Plan. Woodside released the study and draft plan for public comment in March 2007 and an action plan is currently under development.201 The study identifies the social and economic baseline profile for the Pilbara, which includes profiling the demography and regional history, and the distribution of housing and accommodation, and medical and health services. The study then identifies the predicted impacts of the Pluto LNG project and possible management strategies.
In terms of infrastructure, the plan indicates that:
Pluto will involve investment in substantial common user infrastructure, including water, power, roads, transport corridors, ports, accommodation, education, health and communications.202
199 Clause 14, Schedule 1, North West Gas Development (Woodside) Agreement Act 1979. 200 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, p7. 201 Ms Naomi Evans, Community Affairs Coordinator Pluto, Woodside Energy Ltd, Briefing, 1 August 2007. 202 Woodside Energy Ltd, ‘Pluto LNG Development Burrup LNG Park Social Impact Study’, March 2007, p7. Available at: www.woodside.com.au/NR/rdonlyres/6A1824EB-3418-4E79-A968-E69410348A1B/0/PlutoLNGDevelopmentBurrup LNGParkSocialImpactStudyMarch2007.pdf Accessed on 17 July 2007.
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The draft management plan indicates that Woodside will work with other industry and governments to agree on regional community development priorities, and that state and local government will need to ensure that sufficient services and infrastructure are available to the local community.203
Committee Analysis
The Committee identified a number of issues concerning the adequacy of funding arrangements for infrastructure to support the Burrup Gas Processing Developments, which can be summarised as follows:
As previously stated, the North West Shelf project is exempt from PRRT. Over the last 20 years, the NWSV has contributed more than $4.95 billion in royalties and once full production is realised from the fifth train expansion, annual royalties in excess of $800 million are anticipated.204 The special royalty sharing arrangement between the commonwealth and the state in this regard is discussed in greater detail in Chapter 5.1(b). The Pluto gas field however is subject to the usual tax regime whereby the commonwealth secures PRRT revenues. It is anticipated that the federal government will secure revenues of up to $8 billion (including PRRT) over the life of the Pluto project, assuming a two train development, compared to an estimated revenue stream to state and local governments of $445 million.205
There is no evidence to suggest that any direct financial assistance has been offered or committed by the federal government to assist the Burrup gas processing developments. It can be argued however that in terms of the North West Shelf development, while there may not have been direct federal government funding assistance towards infrastructure, the federal government concession on the North West Shelf ensures some return of royalty revenues to the state. In any case, it is also likely that federal government grants have contributed towards social infrastructure development in Karratha to some extent, for example via commonwealth grants, which would benefit both the NWSV and Pluto LNG projects.
The Committee heard about social infrastructure pressures affecting the Shire of Roebourne, which covers the Burrup Peninsula and includes the towns of Karratha and Dampier. The construction workforce for the North West Shelf fifth train expansion is
203 Ibid., p26. 204 Woodside Energy Ltd., ‘North West Shelf Venture Approves LNG Expansion. Announcement 10 June 2005’, Available at: www.woodside.com.au/NR/rdonlyres/D6B882E1-39B2-4336-AAE2-68CB6D53441E/0/NorthWestShelfVenture approvesLNGexpansion10June2005.pdf Accessed on 7 March 2007. 205 Woodside Energy Ltd, ‘Pluto LNG Development Burrup LNG Park Social Impact Study’, March 2007, p8. Available at: www.woodside.com.au/NR/rdonlyres/6A1824EB-3418-4E79-A968-E69410348A1B/0/PlutoLNGDevelopmentBurrup LNGParkSocialImpactStudyMarch2007.pdf Accessed on 17 July 2007.
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expected to peak at 1,500206 and a peak construction workforce of 3,000 people is anticipated for the Pluto project between 2007 and 2010, with a permanent workforce of approximately 300 once operational.207 Together, this represents a significant population increase for the regional centre of Karratha to absorb. Woodside intends to roll-over its construction workforce upon completion of the NWSV fifth train expansion to the Pluto project and the operations workforce for Pluto will also have a sizeable FIFO component.208 While this will reduce the strain on accommodation and social infrastructure in Karratha, it will not totally eliminate it.
The Committee is also cognisant that the Burrup gas processing developments are not the only major infrastructure projects proposed for the region that are likely to have an impact. Rio Tinto is also considering a major expansion of its operations in the Pilbara to support increased production of iron ore to 420 mtpa.209 This will likely involve expanding existing port facilities at Cape Lambert (40km north of Karratha) and Parker Point (Dampier). In this respect, the proximity to Karratha makes it an ideal base for the workforce and improvements in social infrastructure here would be of great benefit to the operation.210
According to the Shire of Roebourne, significant investment in social infrastructure is needed in Karratha to support the influx of workers and their families including recreational facilities such as indoor sporting facilities, a swimming pool upgrade, and expanded gymnasium facilities.211 This view was shared by the Pilbara Area Consultative Committee, which drew attention to insufficient amenities in Karratha such as a marina, and inadequate health facilities.212 The inadequacy of hospital facilities and lack of suitably trained staff in the Pilbara was also highlighted by APPEA, and in particular the need for the Karratha hospital to be upgraded from a district health service to a regional hospital213, a view also shared by the local Member.214
206 Woodside Energy Ltd., ‘North West Shelf Venture Approves LNG Expansion. Announcement 10 June 2005’, Available at: www.woodside.com.au/NR/rdonlyres/D6B882E1-39B2-4336-AAE2-68CB6D53441E/0/NorthWestShelfVenture approvesLNGexpansion10June2005.pdf Accessed on 7 March 2007. 207 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/Images/investment/Prospect_Sep_Dec07.pdf Accessed on 6 December 2007. 208 Woodside Energy Ltd, ‘Pluto LNG Development Burrup LNG Park Social Impact Study’, March 2007, p1. Available at: www.woodside.com.au/NR/rdonlyres/6A1824EB-3418-4E79-A968-E69410348A1B/0/PlutoLNGDevelopmentBurrup LNGParkSocialImpactStudyMarch2007.pdf Accessed on 17 July 2007. 209 Rio Tinto, ‘Rio Tinto poised for exceptional growth - Media Release’, 26 November 2007. Available at: www.riotinto.com/media/5157_6922.asp Accessed on 4 January 2008. 210 Mr Warwick Smith, Managing Director Expansion Projects, Rio Tinto Iron Ore, Briefing, 31 July 2007. 211 Mr Allan Moles, Chief Executive Officer, Shire of Roebourne, Briefing, 30 July 2007. 212 Mr Peter Hinchcliffe, Executive Member, and Mr Gary Slee, Treasurer, Pilbara Area Consultative Committee, Briefing, 30 July 2007. 213 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, p11.
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Accommodation pressures aside, the Committee is aware that social infrastructure in Karratha is inadequate to cater for the rapid growth of resource projects in the region. In terms of funding such infrastructure, the Shire of Roebourne advised that while the resource companies are generous with contributions, outcomes are often tied to what these parties want to fund or contribute. Major companies will often limit funding to services that will have the greatest benefit for their employees, for example childcare services. The Shire also advised that companies may hesitate to contribute to social infrastructure projects unless the state government provides matching funds, and the state government may hold back unless there is a similar commitment from the federal government. Securing sufficient funds therefore is often a long and drawn-out process.215 A more detailed analysis of the difficulties faced by local governments is presented in Chapter 5.4.
3.5 Browse Basin Gas and Condensate Projects
Background
The Browse Basin is located off the West Kimberley coast, approximately 400km offshore north of Broome and 2200km northeast of Perth. The Browse Basin comprises an estimated reserve of over 30 trillion cubic feet of natural gas and 600 million barrels of condensate216 and constitutes Western Australia’s second largest gas reserve after the Carnarvon Basin (North West Shelf).217 218 Projects under consideration in the Browse Basin are comparatively long-range relative to those being investigated off the Pilbara coast such as Pluto and Gorgon. The Browse Basin projects reviewed here are not expected to commence until after 2012, reflecting long potential construction lead times of up to 5 years.219 Ultimately, how long these projects take to materialise and final project cost will be determined by global demand for LNG and whether supply contracts can sufficiently offset the significant start up costs.220
Two major projects to date have been proposed for the Browse Basin, namely: the Ichthys gas and condensate fields by INPEX Browse Ltd (with 76 per cent ownership) and Total E&P Australia (24 per cent); and the Torosa/Brecknock/Calliance gas and condensate fields by Venture partners
214 Hon. Fredrick Riebeling, MLA, Member for North West Coastal, Parliament of Western Australia, Transcript of Evidence, 19 March 2008, pp3-4. 215 Mr Allan Moles, Chief Executive Officer, Shire of Roebourne, Briefing, 30 July 2007. 216 ‘Condensate’ is defined as any mixture of relatively light hydrocarbons which remain liquid at normal temperature and pressure and lacks or has very little of the heavy hydrocarbons associated with crude oil. LNG refers to natural gas which is made liquid by reducing its temperature (as defined by Caltex Product Glossary, Available at: www.caltex.com.au/products_glo.asp Accessed on 22 March 2007). 217 Australian Government Regional Minerals Program, ‘Developing the West Kimberley’s Resources’, August 2005, Available at: www.doir.wa.gov.au/documents/investment/West_Kim_Full_report.pdf Accessed on 22 March 2007. 218 Office of Energy Western Australia, Available at: www.energy.wa.gov.au/cproot/913/6519/Gas_Reserves_290906.pdf Accessed on 22 March 2007. 219 Australian Bureau of Agricultural and Resource Economics, ‘Australian Commodities March Quarter 2007’, p93. Available at: www.abareconomics.com/publications_html/news/news.html Accessed on 22 March 2007. 220 Ibid.
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Woodside Energy Ltd (~50 per cent) (Operator), BP Developments Australia Ltd, Chevron Australia Pty Ltd, BHP Billiton Petroleum (NWS) Pty Ltd, and Shell Development (Australia) Pty Ltd.
Ichthys
The Ichthys gas and condensate fields were discovered in 1980 and are estimated to hold reserves of 9.5 trillion cubic feet of gas and 310 million barrels of condensate.221 222 The core component of the Ichthys development involves an integrated LNG facility capable of initially processing up to 8 million tones of LNG per annum and 88,000 barrels per day of condensate, with later potential for expansion. It is anticipated that production will commence around 2012 with export to occur to the Asia-Pacific market. The proposal to develop the Ichthys fields includes offshore semi-submersible facilities and a subsea pipeline to an offshore LNG processing location. INPEX Browse Ltd identified the Maret Islands off the Kimberley coast as the preferred location for its gas processing facilities.223 224 Conversely, DoIR highlighted the benefits of establishing an onshore facility. This would enable gas to be delivered to the domestic market and/or provide local opportunities for LNG and downstream processing. An onshore facility would also create potential for the establishment of a gas processing hub that could incorporate as yet undeveloped/undiscovered gas fields within the Browse Basin.225 The precise location of processing facilities is yet to be determined - this is discussed further below. Development of the Ichthys fields is estimated to generate a construction workforce of 2,000 and an operations workforce of 500. The proponents are currently also examining the potential of new technologies associated with downstream gas processing such as gas to liquids and dimethyl ether, as well as possibilities for domestic gas supply.226
Torosa/Brecknock/Calliance
The Torosa field was discovered in 1971 with discovery of the Brecknock and Calliance fields following in 1979 and 2000 respectively. The fields are estimated to hold a total reserve of over
221 WA Department of Industry and Resources, ‘Western Australian Oil and Gas Review 2006 Revised Edition’, February 2007, p60, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/WA_Oil_Gas_Review_2006.pdf Accessed on 22 March 2007. 222 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/investment/Prospect_March07.pdf Accessed on 22 March 2007. 223 Inpex Browse Ichthys Gas Field Development, Available at: www.projectconnect.com.au/Project_Details.asp?PID=335 Accessed on 1 June 2007. 224 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/Images/investment/Prospect_Sep_Dec07.pdf Accessed on 6 December 2007. 225 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/mineralsandpetroleum/Prospect_Dec06.pdf Accessed on 22 March 2007. 226 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/investment/Prospect_March07.pdf Accessed on 22 March 2007.
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18 trillion cubic feet of gas and 300 million barrels of condensate. The Venture partners are currently undertaking project development concepts and marketing of the gas reserves. A final investment decision is anticipated in 2008-2010 and LNG production is targeted to commence in 2013-2015 subject to appraisal, negotiation with customers and approvals.227 228 Concepts under consideration by Woodside for developing the Browse Basin fields include an offshore gas processing development, the use of nearby islands for a facility, or transporting gas to an onshore processing and export facility.229 The initial development concept involves offshore facilities and between one and three LNG processing trains with the capacity to process 7 to 14 mtpa of LNG.230 Development of the Browse Basin fields could generate an estimated construction workforce of 1500 and an operations workforce of 150-200.231 During 2007, Woodside evaluated the suitability of several sites for LNG facilities and further developed LNG engineering concepts.232
The precise location of processing facilities for the Ichthys and Torosa/Brecknock/Calliance developments are yet to be determined. In 2007, community concerns were raised over the proposed resource developments in the Kimberley including the threat from developments to the Kimberley’s pristine wilderness and perceived infrastructure deficiencies which could potentially create conflicts between resources companies and tourism as both sectors compete for scarce accommodation and services.233 234
The state government established the Northern Development Taskforce in June 2007. The West Kimberley Subdivision of the Taskforce comprises high level representation from key government agencies, namely the Departments of: Industry and Resources; Environment and Conservation; Planning and Infrastructure; and Indigenous Affairs; the Office of Native Title; Kimberley Development Commission; and Tourism Western Australia. The Taskforce is to make recommendations to a Ministerial Committee (comprising the Deputy Premier, and Ministers for: the Environment; Indigenous Affairs and Heritage; Planning and Infrastructure; and Industry and Resources) concerning a suitable location or locations for the processing of Browse Basin gas.
227 Woodside Energy Ltd., ‘Browse LNG Development’, Available at: www.woodside.com.au/Our+Business/Development/Browse/ Accessed on 27 March 2008. 228 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/investment/ProspectJune2006.pdf Accessed on 22 March 2007. 229 Ibid. 230 Petroleum Exploration Society of Australia Newsletter (October/November 2006), Available at: www.pesa.com.au/publications/pesa_news/Oct_06/govtsupp/westaus.pdf Accessed on 22 March 2007. 231 Australian Petroleum Production and Exploration Association, Submission to the State Infrastructure Strategy (February 2006), p12, Available at: www.appea.com.au/PolicyIndustryIssues/documents/policysubmissions/ SubmissiontoStateInfrastructureStrategy.pdf Accessed on 22 February 2007. 232 Woodside Energy Ltd., Annual Report 2007, p26. Available at http://woodside.ice4.interactiveinvestor.com.au/Woodside0801/Annual%20Report%202007/EN/body.aspx?z=3&p=- 1&v=1&vid= Accessed 15 April 2008. 233 Cultural Heritage and Environmental Advocacy for the Kimberley, Available at: www.savethekimberley.com/content/view/46/78/ Accessed on 18 June 2007. 234 Jones, C., ‘Bid to keep boom out of the Kimberley’, The West Australian, 16 April 2007, p28.
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The Taskforce is to liaise with key stakeholders including commonwealth officers on the environmental and heritage values of potential sites, as well as the Kimberley Land Council and Aboriginal groups to ensure that any developments will benefit the broader region.235 236
The federal government has since signed a strategic assessment agreement under Section 146(1) of the Environment Protection and Biodiversity Conservation Act 1999 (Cth) with the state government. The agreement commits both governments to:
…undertake an assessment under section 146 of the EPBC Act, of a Plan for a Common- User Liquefied Natural Gas Hub Precinct and its associated activities, and recognise the requirements for assessment under s38 of the EP Act. To ensure the best sustainable and timely outcome, assessment of the plan will be undertaken concurrently through a coordinated and collaborative process, producing a set of reports that meet the requirements of both the EPBC Act and EP Act. The Plan will promote ecologically sustainable development and provide for the protection and conservation of the environment, especially matters of National Environmental Significance.237
In justifying the strategic assessment approach, the federal Environment Minister stated that neither government wanted ad hoc developments, namely ports and processing facilities, occurring along the Kimberley coast which risked damaging the environment and heritage. The assessment will first identify a site for a single common-user hub, and will be followed by a wider strategic assessment of the Kimberley. This latter stage will involve consultation with various stakeholders including conservation groups, industry and traditional owners with the intention of identifying ‘the region’s environmental assets including national and international heritage values’.238
The work of the Northern Development Taskforce will feed into the federal-state strategic assessment process. The Taskforce has commissioned a consultant to undertake an engineering study of proponents’ existing site proposals and test their technical validity. The study is intended to provide a shortlist of three or four locations which will then be subjected to specific assessment under the bilateral process.239 The strategic assessment agreement states that both governments have ‘collaborated in the development of the draft site selection criteria to cover all relevant
235 Hon. E.S. Ripper, MLA, Minister for State Development, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 20 November 2007, p7364. 236 WA Department of Industry and Resources, Northern Development Taskforce Terms of Reference, October 2007. Available at: www.doir.wa.gov.au/documents/aboutus/071335_NDT_ToR.pdf Accessed on 6 December 2007. 237 Clause 3.2 Environment Protection and Biodiversity Conservation Act 1999 Part 10 Strategic Assessments Section 146(1) Agreement Relating to the assessment of the impacts of actions under the Plan for the Browse Basin Common- User Liquefied Natural Gas Hub Precinct and associated activities, 6 February 2008. Available at www.environment.gov.au/epbc/notices/pubs/kimberley-signed-agreement.pdf Accessed on 1 April 2008. Under clause 2, the EPBC Act is defined as the Environment Protection and Biodiversity Conservation Act 1999 (Cth) and the EP Act is defined as the Environmental Protection Act 1986 (WA). 238 Hon. Peter Garrett AM, MP (Australian Government, Minister for the Environment, Heritage and the Arts), and Hon. John Kobelke, MLA (Western Australian Government, Acting Minister for State Development), Big Picture Study of Australia’s Kimberley, Joint Media Release, Government of Australia, 5 February 2008. 239 Department of Industry and Resources, ‘Northern Development Taskforce Notes of Meeting. Public Meeting, Broome’, 4 February 2008. Available at: www.doir.wa.gov.au/documents/businessandindustry/000087.Gillian.GALLAGHER.doc Accessed on 1 April 2008.
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matters’. Indeed, the selection criteria take into account environmental, socio- economic/community/tourism, industry/site technical requirements, and Indigenous considerations. While the strategic assessment process is being established to investigate the location of a processing hub in the Kimberley, the agreement states that ‘feasible alternatives to locations of the Precinct outside of the Kimberley Region’ will also be considered.240 A hub is therefore not a foregone conclusion however the Northern Development Taskforce reinforces the point that should a hub site receive the necessary environmental approvals, companies will be discouraged from locating outside of it.241
A timeframe has not been committed to for the strategic assessment process although the Northern Development Taskforce has acknowledged the importance of resolving the site issue quickly in order to secure development. Nonetheless, the Taskforce views one of its roles as resolving tensions between the time needed to identify a site, and the time needed to establish the biodiversity values of the region.242 INPEX Browse Ltd highlighted concerns with the timing of the reviews and the possibility of establishing processing facilities in the Northern Territory instead:
…the outcome of these reviews, as has been communicated to us, will significantly influence the success and the location and the timing of a project such as the development of the Ichthys field… first cargoes out of the Maret Islands before 2013 is most unlikely. Should we be placed in a situation in Western Australia where we are engaging in a project opportunity that does not enable us to get our first cargoes out before mid-2014, then it may appear that the development of the Ichthys field in Western Australia is a lost opportunity.243
The Northern Development Taskforce has indicated however, that proponents are still entitled to independently submit proposals for assessment244, which is what INPEX Browse Ltd is doing:
We are still holding to our approvals process; we are still continuing with it. The Maret Islands remain our preferred option and we are still working with government and stakeholders on that option. We are also very happily working with the two levels of review that are currently underway by providing them a great deal of information, input and support.245
240 Clause 4.6 and Attachment A, Environment Protection and Biodiversity Conservation Act 1999 Part 10 Strategic Assessments Section 146(1) Agreement Relating to the assessment of the impacts of actions under the Plan for the Browse Basin Common-User Liquefied Natural Gas Hub Precinct and associated activities, 6 February 2008. Available at: www.environment.gov.au/epbc/notices/pubs/kimberley-signed-agreement.pdf Accessed on 1 April 2008. 241 Department of Industry and Resources, ‘Northern Development Taskforce Notes of Meeting. Public Meeting, Broome’, 4 February 2008. Available at: www.doir.wa.gov.au/documents/businessandindustry/000087.Gillian.GALLAGHER.doc Accessed on 1 April 2008. 242 Ibid. 243 Mr Sean Kildare, General Manager External Affairs, INPEX Browse Ltd, Transcript of Evidence, 10 March 2008, pp2-3. 244 Department of Industry and Resources, ‘Northern Development Taskforce Notes of Meeting. Public Meeting, Broome’, 4 February 2008. Available at: www.doir.wa.gov.au/documents/businessandindustry/000087.Gillian.GALLAGHER.doc Accessed on 1 April 2008. 245 Mr Sean Kildare, General Manager External Affairs, INPEX Browse Ltd, Transcript of Evidence, 10 March 2008, p5.
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Funding Arrangements
The long-range nature of the Browse Basin gas/condensate projects and the fact that plans are still largely conceptual means that no serious infrastructure commitments have yet been made. Given that the state and federal governments are yet to determine an appropriate location for onshore LNG processing facilities, no government infrastructure funding assistance has yet been committed to these projects nor is this likely in the short-term. To date, federal government assistance to the Ichthys project has been in the form of granting MPF status to the main proponent, INPEX Browse Ltd. As previously stated, MPF is limited to the provision of information, advice and support to developers regarding the necessary government approvals for projects with strategic national significance.
The Port of Broome has already been highlighted as an important supply base for offshore exploration activities. As the closest major centre to exploration areas in the Browse Basin, it is suitable for rig servicing and supply logistics.246 The state government invested $14.3 million into a 148m extension of the Broome jetty (completed in May 2006) to cater for gas exploration activities and potential development of offshore gas fields, as well as general trade and tourist activity associated with Broome. A further $3 million (taking the total cost of the jetty extension to $17.3 million) was funded via a grant from the commonwealth government’s Sustainable Regions Program.247
In terms of anticipated revenues from Browse Basin developments, the Ichthys fields are in commonwealth waters and as such the federal government will eventually secure PRRT revenues. This would similarly be the case with the Torosa/Brecknock/Calliance fields which are also located in commonwealth waters.
Committee Analysis
The Committee identified the following issues concerning the adequacy of funding arrangements for infrastructure relating to Browse Basin gas and condensate projects:
While the precise infrastructure needs associated with developing the Browse Basin projects are as yet unknown, a report was prepared in 2005 under the federal government’s Regional Minerals Program (RMP) which examined infrastructure requirements in the Kimberley under a number of resource development scenarios of differing intensities. Developing the West Kimberley’s Resources (‘the Report’) was co-funded by the federal government, state government and private industry. Infrastructure needs including transport (port, roads, air), energy, water and telecommunications under a number of development scenarios (low, medium and high and including gas and mineral developments) are covered in the Report. The Report also examines existing social infrastructure in major population centres (Broome, Derby, Fitzroy Crossing, Wyndham,
246 Kimberley Development Commission, ‘Kimberley Economic Perspective July 2006’, p8, Available at: www.kdc.wa.gov.au/documents/kdc/ep06/mining.pdf Accessed on 22 March 2007. 247 Hon. Alannah MacTiernan, MLA, (Minster for Planning and Infrastructure), Broome gets new jetty, Media Statement, 25 May 2006.
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and Kununurra) and how this will be impacted by resource developments. The medium growth resource development scenario is examined in depth as it is the most likely to occur, and includes estimated costs of developing the necessary multi-user infrastructure and social infrastructure to support this option.
The major findings from the Report relevant to the proposed Browse Basin projects can be summarised as follows:
- The gas reserves of the Browse Basin are significant by world standards and therefore have great development potential;
- The isolation and sparse population of the Kimberley region mean that large resource projects will require major new infrastructure, especially for transporting materials in and products out, as well as requiring communications, accommodation and other social infrastructure;
- It is estimated that the cost of infrastructure necessary to support an onshore gas facility close to an existing major town (including port upgrades, roads, energy, water, and accommodation) will be (at 2004 prices) between $350 million and $525 million;
- Social infrastructure in the West Kimberley is generally adequate to service the existing population at current levels of growth. Particular deficiencies requiring improvement to cater for a higher growth scenario include the lack of available land for housing in Broome, inadequate secondary education facilities, and medical facilities.248
According to the Report, the most significant impediment to the development of major resource projects in the West Kimberley is underdeveloped infrastructure. The remoteness of the West Kimberley is a challenge in this respect and presents particular cost imposts for the establishment and maintenance of new projects.249
In its submission, APPEA raises similar points, in particular the need for ‘major new infrastructure, especially land for processing, port facilities and roads’ to enable development in the Kimberley region to proceed. APPEA also warns that ‘the housing situation and land availability problems in the Pilbara will be mirrored in the Kimberley without adequate planning ahead of demand’.250
The Committee concurs with the issues raised above insomuch as major investment into both economic and social infrastructure will be necessary to support the developments
248 Australian Government Regional Minerals Program, ‘Developing the West Kimberley’s Resources (Executive Overview)’, August 2005, Available at: www.industry.gov.au/assets/documents/itrinternet/FinalExecOverview 20050920083604.pdf Accessed on 21 March 2007. 249 Australian Government Department of Industry, Tourism and Resources, Available at: www.industry.gov.au/content/itrinternet/cmscontent.cfm?objectID=6CDA2FC1-0ADE-DAAF4C4FE4FC894E9 C83 Accessed on 22 March 2007. 250 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, p10.
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proposed for the Browse Basin. The extent of infrastructure and therefore investment required will be clearer once projects have advanced further and issues surrounding the exact scale of development and timelines for implementation have been resolved. Given that the federal government stands to benefit from PRRT revenues, the Committee strongly supports a more equitable sharing of infrastructure funding responsibilities between the commonwealth and the state to avoid a disproportionate responsibility befalling the state for infrastructure development, particularly as Browse Basin projects are undoubtedly of national significance.
3.6 Pilbara Iron Ore and Infrastructure Project
Background
Fortescue Metals Group Ltd (FMG) owns the largest holding of iron ore tenements in the Pilbara, comprising approximately 40,000 square kilometres with an estimated combined resource of 2.4 billion tonnes of iron ore.251 The Cloud Break and Christmas Creek deposits are located in the Chichester Ranges, approximately 120km northwest of Newman and 260km southeast of Port Hedland (approximately 1600km northeast of Perth). These deposits represent only a fraction of FMG’s total tenement holdings but are the first to be developed under FMG’s Pilbara Iron Ore and Infrastructure Project, which has been under development in its current guise since mid- 2003.252 253 Initial production of iron ore is intended at 45 mtpa with the first shipment of ore proposed for May 2008.254
The development of port and rail infrastructure is a core component of the project. Infrastructure under development by FMG includes a 260km railway with loading and unloading facilities connecting the mine at Cloud Break with a new port facility at Port Hedland. The port facility being developed at Anderson Point in Port Hedland harbour will comprise a twin shipping berth, stockpile area and conveyor facilities.255 256 The project is anticipated to generate a construction
251 Fortescue Metals Group Ltd., ‘Corporate Overview’, Available at: www.fmgl.com.au/IRM/content/about_ corporateoverview.htm Accessed on 8 January 2008. 252 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/documents/investment/ProspectMarch2006.pdf Accessed on 29 March 2007. 253 Fortescue Metals Group Ltd., ‘History’, Available at: www.fmgl.com.au/company/?p=History&a=Information Accessed on 28 March 2007. 254 Fortescue Metals Group Ltd., ‘Project Introduction’, Available at: www.fmgl.com.au/IRM/content/project_ introduction.htm Accessed on 8 January 2008. 255 Hon. Alannah MacTiernan, MLA, (Minister for Planning and Infrastructure), Fortescue’s open access infrastructure welcomed, Media Statement, 8 February 2007. 256 Fortescue Metals Group Ltd., ‘Fortescue completes $A2.7 Billion Debt Underwriting. Announcement 14 August 2006’ Available at: www.fmgl.com.au/pdf/investors/Announcements/2006/August_14_2006_A2.7_Billion_Debt_ Underwriting.pdf Accessed on 30 March 2007.
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workforce of 2,500 and an operations workforce of approximately 800 personnel.257 Overall, 90 per cent of project works have been completed and the mining and stockpiling of ore is underway.258
FMG is currently challenging BHP Billiton’s exclusive use iron ore railways under national competition rules. While FMG is constructing its own rail infrastructure to service the Chichester Range deposits, access is being sought to BHP Billiton’s Mount Newman railway to enable the smaller and otherwise economically unviable Mindy Mindy project to be developed. A Federal Court ruling in December 2006 found that BHP Billiton’s railway was not part of a production process and was therefore not exempt from third party access provisions under the Trade Practices Act 1974 (Cth). The ruling however did not automatically grant third party access to BHP Billiton’s railway by FMG. For this to occur, the railway needs to be declared a service under the Trade Practices Act 1974 (Cth). This is currently subject to separate proceedings in the Australian Competition Tribunal.259 260 261 The Tribunal is yet to conduct a full hearing of the case.262 BHP Billiton also appealed the Federal Court ruling, and while the appeal was dismissed by the full Federal Court in October 2007, BHP Billiton applied to the High Court for special leave to appeal the full Federal Court’s decision.263 Leave to appeal was granted by the High Court and an appeal could commence in July 2008.264
More recently, FMG lodged applications with the National Competition Council for third party access to Rio Tinto railways in the Pilbara, namely, the Hamersley and Robe River Railways. The applications lodged under Part IIIA of the Trade Practices Act 1974 (Cth) are for declaration of a service therefore enabling access to rail facilities. A similar application was also lodged for access to BHP Billiton’s Mount Goldsworthy Railway.265
257 WA Department of Industry and Resources, ‘Prospect Western Australia’s International Resources Development Magazine’, Available at: www.doir.wa.gov.au/Images/investment/Prospect_Sep_Dec07.pdf Accessed on 6 December 2007. 258 Fortescue Metals Groups Ltd., ‘Pilbara Iron Ore and Infrastructure Project Monthly Construction Report’, February 2008. Available at: www.fmgl.com.au/IRM/content/invest_constructionreports.htm Accessed on 2 April 2008. 259 Trounson, A., and Gosch, E., ‘FMG in big win against Billiton’, The Australian, 19 December 2006, p19. 260 O’Connell, R., and Keenan, R., ‘Rail key to mineral wealth: body’, The West Australian, 20 December 2006, p4. 261 BHP Billiton, ‘Federal Court Decision Threatens Australian Exports’, 18 December 2006. Available at: www.bhpbilliton.com/bb/investorsMedia/news/2006/federalCourtDecisionThreatensAustralianExports.jsp Accessed on 8 January 2008. 262 Australian Competition Tribunal, Available at: www.competitiontribunal.gov.au/listings.html Accessed on 8 January 2008. 263 National Competition Council, ‘Application by Fortescue Metals Group Ltd (FMG) for declaration of a service provided by the Mt Newman and Goldsworthy railway lines: Application for declaration’, November 2007. Available at: www.ncc.gov.au/publication.asp?publicationID=189§orID=23 Accessed on 8 January 2008. 264 Klinger, P., ‘BHP wins right for rail appeal’, The West Australian, 8 March 2008, p77. 265 National Competition Council, ‘Transport: Rail’, nd. Available at: www.ncc.gov.au/sector.asp?sectorID=23&page=#Article-290 Accessed on 2 April 2008.
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In May 2006 the state Treasurer approved the development of a state-based access regime for haulage on Pilbara iron ore railways, capable of certification under the Trade Practices Act 1974 (Cth). Development of the regime will initially be in consultation with BHP Billiton but will have potentially wider application throughout the Pilbara. The regime is intended to facilitate third party access to iron ore transport services in a more expeditious manner.266 The Pilbara Rail Access Interdepartmental Committee chaired by DTF and with members drawn from the DPI, DPC and DoIR has been established to develop the access regime and complete all legislative and other requirements to implement the regime and obtain its certification.267 Although development of the regime is meant to quickly resolve third party access issues, Pilbara miners may yet have to wait until after 2010 for third party access to Pilbara iron ore railways due to the time needed to secure necessary permits and approvals.268
Funding Arrangements
The framework for infrastructure delivery and mining operations is covered in two Agreements made between the state government and wholly owned subsidiaries of FMG (The Pilbara Infrastructure Pty Ltd and FMG Chichester Pty Ltd) and ratified by Parliament. The Railway and Port (The Pilbara Infrastructure Pty Ltd) Agreement Act 2004 (‘Railway and Port Agreement’) covers the planning, construction and operation of the railway and port, and the Iron Ore (FMG Chichester Pty Ltd) Agreement Act 2006 (‘Iron Ore Agreement’) covers mining aspects of the project.269
A significant requirement of the Railway and Port Agreement is for port and rail infrastructure associated with the project to operate under open third party access arrangements. For FMG, the Agreement ensures land tenure for the railway and port and provides certainty for FMG to construct and operate the rail line within the proposed land corridor, and construct and operate their own port facility under the jurisdiction of the Port Hedland Port Authority.270 271 The Iron Ore Agreement imposes secondary processing obligations on FMG but only after a certain production threshold has been reached. Under the Agreement, FMG is required to conduct ongoing investigations into the feasibility of further iron ore processing, however this does not take effect until a 100 million tonne aggregate limit has been mined. The secondary processing requirement was introduced to potentially value add to the project.
266 WA Department of Treasury and Finance, ‘Role of the Pilbara Rail Access Interdepartmental Committee’, Available at: www.dtf.wa.gov.au/cms/tre_content.asp?id=714 Accessed on 18 June 2007. 267 WA Department of Treasury and Finance, ‘Pilbara Rail Access Interdepartmental Committee Terms of Reference’, Available at: www.dtf.wa.gov.au/cms/uploadedFiles/praic_terms_of_reference.pdf Accessed on 18 June 2007. 268 Phaceas, J., ‘Pilbara ore miners face longer rail wait’, The West Australian, 28 May 2007, p35. 269 Hon. Alannah MacTiernan, MLA, (Minister for Planning and Infrastructure), Fortescue’s open access infrastructure welcomed, Media Statement, 8 February 2007. 270 Schedule 1, Railway and Port (The Pilbara Infrastructure Pty Ltd) Agreement Act 2004. 271 ‘Fortescue signs WA State Agreement’, The Australian Journal of Mining, 12 November 2004, Available at: www.theajmonline.com/informaoz/ajm/home.jsp?var_el=archart&art_id=1100083722572&seqnum=214 Accessed on 29 March 2007.
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Another key feature of the Iron Ore Agreement is a 45 million tonne per annum limit on the amount of iron ore that can be mined, which can only be exceeded with Ministerial approval.272 273 FMG has an ambitious expansion strategy and intends to reach production of 100 mtpa by 2009- 2010 and eventually 200 mtpa.274 FMG has already secured off-take agreements with Chinese steel mills above the first stage production limit of 45 mtpa275 and announced new discoveries of 1.7 billion tonnes of inferred iron ore resources in its Solomon project area (60km north of Tom Price)276, lending more weight to expansion plans.
Under both Agreements, FMG is required to develop Community Development Plans detailing strategies for achieving community and social benefits from the proposed developments, specifically training and employment for Indigenous and non-Indigenous persons living in the Pilbara, regional development and local procurement of goods and services, contribution to community services and facilities, and a regionally based workforce. Specific provisions are made in both Agreements requiring as far as possible, the use of local labour, professional services and materials by FMG.277 The Pilbara Infrastructure Pty Ltd Community Development Plan received approval from the Minister for Planning and Infrastructure in November 2006, with approval of the FMG Chichester Pty Ltd Community Development Plan following shortly after in December 2006. The next stage requires FMG to work with the relevant local government authorities on the outcomes of the plans including commitments for local employment, regional development, and contributions to community services and facilities.278
FMG will gain some financial benefit from the Iron Ore Agreement in the form of exemption from stamp duty for the agreement, for titles granted pursuant to the agreement, and for project financial restructuring for the first two years after the agreement commences. As a standard provision of state agreements it is expected to facilitate FMG project financing. The royalty rates for all iron ore sold under the Iron Ore Agreement are to be calculated as per the Mining Act 1978. The state government is expected to benefit from project royalties to the amount of approximately $120 million a year.279
272 Hon. Alan Carpenter, MLA, (Minister for State Development), Fortescue Metal Group’s State Agreement signed, Media Statement, 1 December 2005. 273 Hon. J.J.M. Bowler, MLA, Minister for Resources, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 5 April 2006, p1168. 274 Fortescue Metals Group, ‘Presentation given at Metal Bulletin Conference’, 27 November 2007. Available at: www.fmgl.com.au/IRM/content/invest_asx.htm. Accessed on 9 January 2008. 275 Fortescue Metals Group Ltd., ‘Long Term Iron Ore Off-take Agreement for up to 20 Mta with Tangshan’, 17 May 2007. Available at: www.fmgl.com.au/IRM/content/invest_asx.htm. Accessed on 9 January 2008. 276 Fortescue Metals Group Ltd., ‘Solomon Iron Ore Resources Growing Now Totals in Excess of 1.7 Billion Tonnes’, 19 December 2007. Available at: www.fmgl.com.au/IRM/content/invest_asx.htm Accessed on 9 January 2008. 277 Clauses 9 and 21, Schedule 1, Railway and Port (The Pilbara Infrastructure Pty Ltd) Agreement Act 2004 and Clauses 7 and 19, Schedule 1, Iron Ore (FMG Chichester Pty Ltd) Agreement Act 2006. 278 Fortescue Metals Group February 2007 Newsletter, Available at: www.fmgl.com.au/pdf/investors/Newsletters/Fortescue_Newsletter_February_2007.pdf Accessed on 29 March 2006. 279 Hon. J.J.M. Bowler, MLA, Minister for Resources, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 5 April 2006, p1168.
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There is no evidence to suggest that the state government has committed any direct infrastructure funding assistance to the project. As such, the financing, construction and ongoing maintenance of mining operations and associated rail and port infrastructure for the project are the responsibility of FMG. The federal government granted MPF status to the project in 2004. As stated previously, assistance in this regard is limited to advice and support with respect to securing necessary government approvals.280
Committee Analysis
The Committee identified a number of issues concerning the adequacy of infrastructure funding arrangements relating to the Pilbara Iron Ore and Infrastructure Project as follows:
Should third party access eventually be permitted to what are currently exclusive use rail networks (owned by BHP Billiton and Rio Tinto), it will have implications beyond FMG. Third party access to the rail network could potentially open up the development of stranded resources by other junior miners.281 This would have implications for export infrastructure such as ports and social infrastructure required to support such operations due to increased volumes of material and larger workforces.
While FMG will build, own and operate all project-related hard infrastructure such as railway and port facilities, the extent of social infrastructure required to support the workforce, particularly in Port Hedland, is yet to be determined. FMG intends to reduce the need for FIFO among its workforce by embarking on a housing program with a plan to construct 250 houses in the Hedland area by December 2008.282 Coupled with ambitious expansion plans by FMG, this will undoubtedly increase pressures on existing health, education and recreation facilities in the town therefore highlighting the need for significant investment in social infrastructure to support growth over time.
Currently, FMG’s Community Development Plans are more strategy oriented than implementation documents. Being entirely equity-funded, the Pilbara project is not currently generating revenues and as such, FMG has advised, ‘our ability to dip into our pocket to fund community projects is negligible at the moment’.283 While this may change once the project matures, local government will still require adequate support in order to avoid the difficulties experienced by other local authorities in similar positions of responding to rapid growth (e.g. the Shire of Ravensthorpe). Mechanisms for reducing the burden on local government are discussed further in Chapter 5.4.
280 Hon. Ian Macfarlane, MP, (Minister for Industry, Tourism and Resources), New Status for $1.85 billion iron ore project in WA, Media Release, 13 December 2004. 281 Drummond, M., and Hepworth, A., ‘BHP rail monopoly under threat’, Australian Financial Review, 19 December 2006, p1. 282 Fortescue Metals Group Ltd., ‘Newsletter’, November 2007, p10. Available at: www.fmgl.com.au/IRM/content/invest_newsletters.htm Accessed on 9 January 2008. 283 Mr Julian Tapp, Head of Government Relations, Fortescue Metals Group, Transcript of Evidence, 10 March 2008, p8.
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3.7 Summary
A number of points have emerged clearly from the Committee’s review of selected major infrastructure projects in Western Australia, firstly the economic significance of resource projects in Western Australia (either underway, under development, or proposed), to the state and more broadly, to the nation. Secondly, the clear disparity between costs/benefits to the state compared to the commonwealth for projects of national significance whereby benefits accrue to the commonwealth but the majority of infrastructure costs, where these are to be met by government, are borne by the state.
Finding 1
Western Australia is the location of major infrastructure projects, which are either underway, under development or proposed. These projects have, and will continue to have, significant national and state economic benefits.
Finding 2
There is evidence of a disparity between the costs/benefits to the state compared to the commonwealth for projects of national significance whereby benefits accrue to the commonwealth but the majority of infrastructure costs, where these are to be met by government, are borne by the state.
Also apparent in this review of selected projects is the long-term nature of projects and/or the prospects for expansion. The Western Australian resources sector has a healthy growth outlook to 2015.284 According to APPEA, the state’s petroleum industry alone has the potential ‘to maintain strong growth for the next 20 years or more’.285 The lengthy duration of projects and growth prospects of the resources sector in general, has led to the suggestion that Western Australia is not just experiencing a ‘boom’ (which implies an impending ‘bust’) but that this may be the start of a sustained pattern of development.286 If this is the case, it highlights the importance of infrastructure to sustaining individual resource developments, the communities that support these, and more broadly, the long-term economic prosperity of Western Australia.
284 Submission No. 15 from Chamber of Minerals and Energy, 2 May 2007, p12. 285 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, p4. 286 Ms Eve Howell, Vice President North West Shelf Joint Venture, ‘Riding the Boom’, Saturday Extra, ABC Radio National, 3 May 2008. Transcript of broadcast. Available at: www.abc.net.au/rn/saturdayextra/stories/2008/2234021.htm Accessed on 6 May 2008.
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Finding 3
The long-term nature of resource projects and/or prospects for further expansion highlight the importance of infrastructure to sustain: individual resource developments; the communities that support these developments; and the economic prosperity of Western Australia.
Some common themes have emerged in this Chapter such as social infrastructure pressure points in regional areas, and the importance of a coordinated approach to bringing major projects on-line. Many of these issues are not confined to the individual projects reviewed here and have also been borne out in evidence presented to the Committee. This is discussed in the following Chapter, which presents a more detailed analysis of the adequacy of infrastructure funding arrangements.
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PUBLIC ACCOUNTS COMMITTEE
CHAPTER 4 THE ADEQUACY OF FUNDING ARRANGEMENTS
4.1 Issues emerging from evidence presented to the Committee
(a) The disadvantage faced by regional areas
Western Australia comprises 32 per cent of the total land mass of Australia, but contains only about 10 per cent of the national population.287 Approximately 73 per cent of Western Australia’s population is based in the Perth metropolitan area, and a further 15.1 per cent live in the South West, Peel and Wheatbelt regions.288 By contrast, the Gascoyne, Pilbara and Kimberley regions, where a large number of resource projects are based, host about 4 per cent of the state’s population.289 This dispersion, combined with the sheer size of the state and its present workforce shortage, has implications for the extent and cost of infrastructure provision and maintenance in regional areas.
Evidence received from organisations based in, or with strong ties to, regional areas, uniformly identified a lack of or inadequate economic and social infrastructure as a key issue impacting on these communities. However, the unique needs of different areas of the state, partly resulting from the diverse resource projects being undertaken, were emphasised, and concern was expressed that the Committee should take account of these differences.290 In particular, different regional areas face specific issues in relation to insufficient or inadequate infrastructure. The Committee was provided with examples of shortfalls or pressure points in present infrastructure needs, including:
health, education and recreation facilities in the North West291, as well as transport, water,292 and energy infrastructure;293
regional transport, energy and water infrastructure in the Mid West;294 and
water and transport, as well as childcare, health and education services for the Goldfields- Esperance area.295
287 Western Australian Technology and Industry Advisory Council. Available at: www.tiac.wa.gov.au/finregion/terms.html Accessed on 4 December 2007. 288 Submission No. 1 from Regional Development Council, 30 March 2007, p5. 289 Ibid. 290 Ibid., p9; Submission No. 15 from Chamber of Minerals and Energy Western Australia, 3 May 2007, p12. 291 Submission No. 15 from Chamber of Minerals and Energy Western Australia, 3 May 2007, pp3-11. 292 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, pp8-11. 293 Hon. Fredrick Riebeling, MLA, Member for North West Coastal, Parliament of Western Australia, Transcript of Evidence, 19 March 2008, p2. 294 Submission No. 12 from Mid West Development Commission, 27 April 2007, pp2-3.
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However, regardless of which services and facilities were lacking, it was anticipated that these pressure points will intensify, particularly in high-growth regions, unless there is a significant change in the funding and other arrangements for the building and maintenance of all classes of infrastructure.
Inadequate infrastructure leads to problems not only with the establishment or growth of major resource projects, but also, importantly, with regions’ ability to attract and retain the skilled workforce necessary for such projects. Among other organisations, the Goldfields Esperance Development Commission (GEDC) considered that ‘soft’ infrastructure issues were critical in order to ‘support skilled workers and their families who are prepared to live and work in regional areas.’296 The GEDC criticised governments’ lack of consideration of the connection between attracting a workforce and providing appropriate supporting infrastructure:
Governments at the State and Federal levels tend to over look the additional resources, both financial and human, that are needed when considering joint funding formulas for the provision of services to support new resource projects.297
‘Soft’ infrastructure issues will be discussed further below.
Consideration of infrastructure provision in regional areas also needs to include a consideration of the infrastructure over its life, including maintenance and running costs. This has a specific impact on local governments in regional areas. The Western Australian Local Government Association gave an example of this issue in relation to sporting infrastructure which, while essential to the functioning of the community, poses particular challenges, observing that local governments ‘can afford to buy it, but … cannot afford to run it.’298 WALGA cited the Shire of Halls Creek as an example of the difficulties facing local government in maintaining infrastructure, having received more than $6.75 million for a new aquatic facility,299 but being forced to close months later ‘because the council could not afford the lifesavers, the kiosk people.’300 WALGA indicated that while the majority of infrastructure is ‘given’ to local government, the responsibility for its maintenance and replacement is taken on without concomitant funding, placing undue pressures on local governments.301 The specific issues facing local government will be also be further discussed below.
295 Submission No. 11 from Goldfields Esperance Development Commission, 23 April 2007, pp2-7. 296 Ibid., p7. 297 Ibid. 298 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, p6. 299 Premier Alan Carpenter, MLA, ‘Newsletter, Edition 20’, 28 July 2006. Available at: www.premier.wa.gov.au/index.cfm?fuseaction=newsletter.edition&editionid=151 Accessed on 4 December 2007. 300 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, p7. 301 Submission No. 8 from Western Australian Local Government Association, 20 April 2007, p4.
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In terms of funding, the main concern arising from regionally based agencies was not whether the commonwealth per se would increase funding, but whether any level of government would. The mismatch between the contribution of the regions to the state and national economies and the funding available to these areas was a concern in many submissions. The Regional Development Council noted concern that although about 80 per cent of Western Australia’s exports are produced in regional areas:
…the State’s infrastructure planning and expenditure does not reflect the vital importance and contribution made to the State by the regions.302
The concern to increase funding for infrastructure regardless of its source was echoed during the Committee’s visit to regional areas. Mr Allan Moles, CEO of the Shire of Roebourne, felt that both state and federal governments needed to improve their arrangements for funding and coordination of infrastructure provision in the regions.303 The Pilbara Development Commission also stated that the message from the community and the Shire is that the region is not getting its fair share of funding, suggesting that the general population is not aware of what each level of government contributes, only that the funding available is not sufficient to relieve pressures such as housing affordability.304
The Mid West Area Consultative Committee took the view that the issue of adequate funding was essentially political:
We … note that metropolitan areas - essentially areas where there are significant numbers of voters - have less of an issue when finding money for projects.305
Finding 4
There are severe infrastructure inadequacies in regional areas, especially in those areas that are supporting major resource projects.
Finding 5
Inadequacies in regional infrastructure are largely the result of lack of funding.
302 Submission No. 1 from Regional Development Council, 30 March 2007, covering letter, p1. 303 Mr Allan Moles, CEO, Shire of Roebourne, Briefing, 30 July 2007. 304 Mr John Verbeek, Senior Project Officer, Pilbara Development Commission, Briefing, 30 July 2007. 305 Submission No. 13 from Mid West Gascoyne Area Consultative Committee, 27 April 2007, p1.
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Finding 6
It is likely that inadequate infrastructure will have an impact on economic growth through affecting the establishment and/or development and/or expansion of major resource projects.
Finding 7
Although infrastructure pressure points are common in regional areas, each area has specific shortfalls.
(b) Insufficient consideration of ‘soft’ infrastructure
As noted in Chapter 1, the Committee’s original terms of reference focused on the provision of major - that is, economic - infrastructure. However, the practical inter-reliance of social and economic infrastructure in the development of the regions was a theme emerging from a number of submissions. The provision of social or ‘soft’ infrastructure, such as education, health, libraries and recreational facilities was seen as essential for attracting the workforce necessary for major resource projects, a particularly pressing issue in the context of a labour shortage. The disparity between demand and supply of social infrastructure in towns located near major resource projects was underlined during the Committee’s tour of the North West, where one gym in Karratha had received 400 applications for membership at once.306 Similarly, the inter-reliance of social and economic infrastructure was sharply illustrated in Hopetoun, where an unanticipated increase in residents, from 400 in 2004 to 1,500 in 2007, occurred as a result of the Ravensthorpe nickel mine.307 This population surge created severe pressure on both social and economic infrastructure, which was exacerbated by an unanticipated increase in the cost of providing such infrastructure. In particular, the cost of a waste water plant for Hopetoun increased from an original estimate of $5.2 million to $30.7 million.308 During the time it took for the state government to approve extra funding for the first stage of the plant, in late September 2007,309 it was claimed that development of infrastructure, including infrastructure to provide services to the community, effectively ceased.310
306 Mr Allan Moles, CEO, Shire of Roebourne, Briefing, 30 July 2007. 307 Stateline, ‘Swamped by the mining boom ... A plea for help from a small coastal community’, 20 July 2007. Available at: www.abc.net.au/stateline/wa/content/2006/s1985564.htm Accessed on 5 December 2007. 308 Mr Stuart Taylor, Chief Executive Officer, and Mr Roy Winslow, Manager Planning and Development, Shire of Ravensthorpe, Briefing, 2 August 2007. 309 Hon. John Kobelke, MLA, (Minister for Water Resources), and Hon. Ljiljana Ravlich, MLC, (Minister for Goldfields- Esperance), Approval for Hopetoun wastewater treatment plan, Media Statement, Government of Western Australia, 26 September 2007. 310 The West Australian, ‘Angry nickel towns stymied by feud over $31m sewage plant’, 4 September 2007. Available at: www.thewest.com.au/default.aspx?MenuID=146&ContentID=39396 Accessed on 5 December 2007.
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The importance of considering social infrastructure to support the development of the resource sector was reiterated by WALGA in its submission, which stated:
[The PAC discussion paper] should be expanded to consider the funding of community infrastructure that supports significant regional infrastructure projects. Given the dramatic skills shortage and the need for WA to increase its labouring population, community infrastructure is very important in any migration to rural or remote communities.311
The Goldfields Esperance Area Development Commission also supported this view:
Whilst the focus of this submission is on ‘hard’ infrastructure, the region also confronts major challenges in the provision of ‘soft’ infrastructure such as childcare, health and education to support skilled workers and their families …312
Resource companies were particularly aware of the impact of a lack of social infrastructure on their ability to attract a workforce. Rio Tinto stated that it had been surprised by the soft infrastructure ‘flashpoint’ in towns like Karratha;313 Burrup Fertilisers Pty Ltd believed that its infrastructure concerns were limited to social, not economic, infrastructure;314 and FMG expressed frustration that despite its state agreements, land for housing in Port Hedland had not been released in a timely manner, which was impacting on the provision of services for its workforce.315 Woodside stated that:
Deterioration of community infrastructure is affecting Woodside’s ability to attract and retain a skilled, motivated workforce for our major projects and operations in the region. This represents a risk to our business. Given the importance of royalty, PRRT and income tax payments for the state and national economies, this also represents a significant risk to government.316
This view was also reflected more broadly in comments by APPEA:
The quantum and quality of social infrastructure impacts on lifestyle and the ‘liveability’ of communities. Inadequate services inhibit the development of local industry (with increased difficulty of attracting and retaining skilled and experienced personnel) and the achievement of government aspirations for regional development and regional
311 Submission No. 8 from Western Australian Local Government Association, 20 April 2007, p3. 312 Submission No. 11 from Goldfields Esperance Area Development Commission, 10 April 2007, p7. 313 Mr Warwick Smith, Managing Director Expansion Projects, Rio Tinto Iron Ore, Briefing, 31 July 2007. 314 Mr Hemant Deshmukh, General Manager Operations, Burrup Fertilisers Pty Ltd, Briefing, 31 July 2007. 315 Mr Julian Tapp, Head of Government Relations, Fortescue Metals Group, Transcript of Evidence, 10 March 2008, pp9- 11. 316 Mr Keith Spence, Executive Vice-President Enterprise Capability, Woodside Energy Ltd, Transcript of Evidence, 10 March 2008, p3.
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communities that are growing and viable in the long-term. At worst, inadequate social infrastructure will constrain the capacity of industry to meet forecast production targets.317
The absence of social infrastructure has an effect not only on whether companies can attract and retain a workforce, but also on whether companies are able to expand or indeed continue their planned projects in Western Australia. INPEX Browse Ltd advised that it is considering moving its proposed processing hub from the Kimberley to Darwin, solely because ‘Darwin already has the [hard and soft] infrastructure to service the industry’, including ‘a workforce that is half trained and job ready.’318 This suggests that the Western Australian Government should take a more active role in planning social infrastructure that will service resource projects, and that such planning is essential to facilitate the full development of the state’s resources.
However, DoIR outlined the difficulties associated with planning for social infrastructure in regional areas, particularly in the context of an economic boom. The high level of uncertainty associated with resource projects makes it difficult for governments to identify which projects will proceed at any point, and plan accordingly.319 As DoIR pointed out, ‘the status of uncommitted projects can change quickly to committed, brought forward, mothballed, cancelled, or to be developed at alternative locations overseas.’320 Even if such projects do commence, it is always possible that companies will alter the scope of their productions without notice. This has implications for the provision of social infrastructure to appropriately support the workforce attached to these projects: the economic infrastructure required for the projects is generally provided by project proponents themselves.321
In addition, attempts to plan and coordinate infrastructure are subject to factors that defy the planning process, whether such factors are social, such as Ravensthorpe workers preferring to reside in Hopetoun rather than Esperance, or economic, such as the fast-tracking of the development of the Pluto gas fields. DoIR’s view is that sudden and sometimes extreme changes are not unusual, and that regardless of the planning that has taken place, the technological aspects of resource extraction and development alone mean that such projects will always carry a large element of mutability.322 Government agencies funding social infrastructure need to be mindful of these vagaries of resource operations in order to ensure that public monies are properly expended and to mitigate the risk of producing stranded assets should projects cease, or not proceed as planned. However, this caution creates the obverse risk of agencies not being able to respond swiftly enough in the event of rapid expansion, or unforseen changes in circumstances.
317 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, p7. 318 Mr Sean Kildare, General Manager External Affairs, INPEX Browse Ltd, Transcript of Evidence, 10 March 2008, p4. 319 Submission No. 10 from Department of Industry and Resources, 23 April 2007, p8. 320 Mr Colin Slattery, Acting Assistant Director General, Department of Industry and Resources, Transcript of Evidence, 21 November 2007, p2. 321 Submission No. 10 from Department of Industry and Resources, 23 April 2007, p8. 322 Mr Peter Kiossev, General Manager, Infrastructure Policy, Department of Industry and Resources, Transcript of Evidence, 21 November 2007, p5.
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DoIR suggested that risk in relation to social infrastructure provision for resource projects is inevitable, and that government’s response should be to plan appropriately, while being mindful of such risks.323 One of its suggestions is to examine workforce planning in relation to the State Infrastructure Strategy, which will enable government ‘to anticipate when likely peaks can emerge’, and to ‘prepare … for increased vocational training, education and amending immigration requirements so we have the necessary skills to meet the demand that may emerge.’324 The social infrastructure needs of specific areas can then be linked to workforce demands.
The Chamber of Commerce and Industry Western Australia (CCI) also expressed the view that all classes of infrastructure should be considered in the Inquiry, stating that ‘it is not just hard infrastructure or economic infrastructure, but across the state there are pressures for infrastructure of many varieties, including social.’325 CCI also suggested that planning, not funding was the crucial issue for social infrastructure:
… the capacity for the state government to borrow and to finance infrastructure is far larger than the physical capacity of the economy to deliver, and that is an issue which goes to the question of planning … in these times of full employment, planning has to be at its absolute best.326
CCI was critical of the lack of transparency regarding the Western Australian Government’s $22 billion, four-year public infrastructure program, about which the public at the time of the hearing, had only been given scant information.327
CCI suggested that the best mechanism to assess and prioritise social infrastructure provision is cost-benefit analysis. While cost-benefit analyses require significant time and effort, CCI argues that they provide an effective means of considering all aspects of a project. CCI cited the example of the sinking of the Subiaco rail line as the result of a cost-benefit analysis that took into account ‘not just the economic costs and benefits but also the social and environmental benefits’, pointing out that had the project been considered on ‘raw economics’ it would never have gone ahead.328 Cost-benefit analyses would, therefore, be suitable for considering the total benefits of social infrastructure, such as its impact on community cohesion and workforce retention, as a part of its assessment of the feasibility of a particular facility or service. The principle underpinning cost- benefit analysis, namely the consideration of environmental, social and economic factors, is discussed further in the context of triple bottom line assessments in Chapter 5.3(d).
323 Ibid., p6. 324 Ibid. 325 Mr John Langoulant, Chief Executive, Chamber of Commerce and Industry, Transcript of Evidence, 26 September 2007, p3. 326 Ibid., p5. 327 Ibid., p3. 328 Ibid., p11.
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The Chamber of Minerals and Energy (CME) shared the concern for the proper provision of social infrastructure from the perspective of it being necessary to support the workforce, stating that ‘if you do not have people, you do not have operations.’329 In CME’s view, there is not and should not be a separation between economic and social infrastructure provision, as it is the social infrastructure that allows for the ‘utilising and optimising’ of economic infrastructure.330 CME provided illustrations of the demographic challenges of the state, such as the requirement for 42,000 staff required in the minerals and energy sector by 2015, in addition to the replacement of those who are now retiring or about to retire.331 To attract these numbers of people, regions will need ‘a level of amenity that will attract and retain those people to live and work in regional Western Australia’, which the CME views as being ‘of critical importance to the future success of our state.’332
Finding 8
Economic infrastructure and social infrastructure are interdependent categories which have an equal impact on major resource projects.
Finding 9
The provision of social infrastructure has a direct impact on the attraction and retention of workforces, so vital to the growth and sustainability of resource companies.
Finding 10
Planning social infrastructure to support resource projects has inherent difficulties, considering the mutability of projects. Failure to plan adequately for social infrastructure and accommodate changing needs however, risks compromising the liveability of communities and the long-term viability of major infrastructure projects.
(c) The lack of coordination between levels of government
Different levels of government have different but often overlapping responsibilities for funding, providing and maintaining infrastructure. Local government has responsibility for providing
329 Mr David Parker, Director, Chamber of Minerals and Energy, Transcript of Evidence, 26 September 2007, p5. 330 Ibid., p10. 331 Ibid., p5. 332 Ibid.
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and/or maintaining infrastructure such as libraries, recreation facilities, local roads, water supplies and sanitation, as well as federal government services such as ‘postal facilities, telecommunications and air transport.’333 State government agencies have responsibility for areas such as transport planning, ports, rail, roads, energy, some telecommunications, schools and health facilities. The federal government provides funding for infrastructure through various programs, such as AusLink for roads and rail, and Specific Purpose Payments for hospitals, schools and housing. Nevertheless, despite areas of shared responsibility, the Regional Development Council’s submission echoes the view of many organisations in stating that planning has been conducted on an agency-by-agency basis, rather than as a result of strategic or overarching planning or coordination between federal, state and local governments.334 The Department for Planning and Infrastructure stated, ‘if you were building a house you would not engage the plumber and the tiler and the roofer and the carpenter and the other people individually with no reference to your overall plan’.335 However, submissions from various sectors suggested that this is largely what has occurred, despite some improvements, and that this fragmented approach continues to impede the provision of infrastructure in regional areas and elsewhere.
The evidence received by the Committee criticised the (now previous) federal government for the lack of consistency and coordination in its investment in Western Australia, both in terms of its funding for major projects as well as its funding of infrastructure. State government departments, unsurprisingly, were the most detailed in their criticism of the former federal government’s perceived lack of willingness to better coordinate with the state in relation to major projects.
DoIR stated that the former federal government’s strategic investment coordination program, run by Invest Australia, had not ‘had too many successes at all in this state’,336 partly as a result of failing to consult with the state. DoIR referred to the Burrup Peninsula as a particularly egregious example of poor coordination between the federal and state governments. The Department said that while the state government had committed $183 million to common-user infrastructure in the area, the federal government ‘through InvestAustralia and its Strategic Investment Coordination program, preferred to provide infrastructure and incentives direct to specific project developers.’337 This had the effect of forcing nearby developments to negotiate with the project developers who had been successful in applying for funds. DoIR noted that ‘in one significant case, the negotiation for access to this publicly funded infrastructure was to be with a direct competitor.’338 However, none of the companies that were offered federal funding continued with their projects, and, as a result, the commonwealth has to date offered no assistance to the
333 Submission No. 8 from Western Australian Local Government Association, 20 April 2007, pp3-4. 334 Submission No. 1 from Regional Development Council, 30 March 2007, p12. 335 Mr Martin Richardson, Executive Director Urban Policy, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p16. 336 Mr Peter Kiossev, General Manager, Infrastructure Policy, Department of Industry and Resources, Transcript of Evidence, 21 November 2007, p12. 337 Submission No. 10 from Department of Industry and Resources, 23 April 2007, p16. 338 Ibid.
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development of the Burrup, despite the fact that other projects have continued, or continued to be under consideration.
The Department of the Premier and Cabinet also illustrated the failings of the former federal government’s approach, and its lack of appreciation of the strategic and economic significance of Western Australian resource projects, by citing an example that occurred on the Burrup Peninsula. In 2000, Canadian company Methanex was looking to establish a methanol production facility in Australia,339 specifically the Northern Territory, which was anticipated to create export earnings of $500 million per annum in 1997 terms.340 The company was successful in obtaining a $110 million commitment in Commonwealth funding for the Northern Territory venture, but in late 2001 decided to move the proposed facility to the Burrup.341 On this basis, the Commonwealth offered the company $85 million to develop multi-user infrastructure for the project.342 343 However, Methanex experienced a range of pressures, including increasing capital costs, and ‘downsized’ their project, at which point the Commonwealth withdrew all offers of funding.344 Methanex then located the project overseas, citing capital costs as the primary cause of the move.345 DPC states that ‘a number of representations were made to the Commonwealth at the time [to] work with the state government to beef up the common-user infrastructure so that we [the state] have the best chance of getting the most projects’,346 but were unsuccessful.
From its perspective as the primary state agency overseeing infrastructure provision, DPI was concerned that the lack of fit between the state and former Commonwealth government’s priorities have lead to the diversion of funds from areas where they would impact most positively on state development. Of particular concern was the allocation of funds from AusLink which, as will be discussed below, does not reflect the freight task of Western Australia. DPI stated that the tying of funds to a specified road network, which excludes Western Australia’s busy ports, leads to a situation where:
…not only do you not have the opportunity to allocate funds where the highest priorities are but, secondly, you also have to contribute to projects that may not be where your
339 Chemicals-technology.com, ‘Methanex Methanol Production Facility Darwin Australia’, 2007. Available at: www.chemicals-technology.com/projects/darwinmethonol/ Accessed on 12 December 2007. 340 Chemlink, ‘The Northern Territory’, 1997. Available at: www.chemlink.com.au/ntchem.htm Accessed on 12 December 2007. 341 Mr Daniel Smith, Deputy Chief Policy Advisor, Department of the Premier and Cabinet, Transcript of Evidence, 15 October 2007, p11. 342 Ibid. 343 Hon. Robin Chapple, MLC, Western Australia, Legislative Council, Parliamentary Debates (Hansard), 11 June 2002, pE578. 344 Mr Daniel Smith, Deputy Chief Policy Advisor, Department of the Premier and Cabinet, Transcript of Evidence, 15 October 2007, p11. 345 Chemicals-technology.com, ‘Methanex Methanol Production Facility Darwin Australia’, 2007. Available at: www.chemicals-technology.com/projects/darwinmethonol/ Accessed on 12 December 2007. 346 Mr Daniel Smith, Deputy Chief Policy Advisor, Department of the Premier and Cabinet, Transcript of Evidence, 15 October 2007, p11.
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highest needs are. So the removal of some of those barriers to where funds are allocated, particularly in the current climate, as I said, if you really want to be allocating funds which have the greatest impact in terms of efficiencies of freight tasks, then you want a bit more flexibility than currently exists.347
Some submissions, such as the Mid West Gascoyne Area Consultative Committee (MWGACC), held the view that both federal and state coordination, and by extension funding, is inadequate, expressing impatience with blame-shifting between levels of government, which in its view only leads to time delays:
We feel that the State v Federal debate is both unhealthy and counter-productive when looking at major infrastructure for multi-million/billion dollar investors. The “he said- she-said” ducking of funding issues can make us look churlish and petty in the face of international competition. Indeed, one $2bn project proponent said to me: “This is almost too hard - why does Australia make it so difficult when some countries roll out the red carpet?” 348
While not concurring with the view of the MWGACC regarding the funding debate, DoIR’s submission also put forward the position that Australia does not act competitively to attract business investment, but identified the issue as one of planning and coordination, which, although involving the Commonwealth government in the possible provision of common-user infrastructure, is primarily a state government concern.349
The Department of Local Government and Regional Development suggested that coordination shortcomings resulted from the funding process, observing that ‘most of the funding is done along lines of agencies rather than across the board, so we have this problem with a combination of agencies and coordination of programs, both at state and federal level.’350 However, DLGRD was of the view that including all agencies in coordination activities was potentially problematic, and suggested that coordination is best served by having ‘one point of contact’, noting that the success of coordination presently is a result of ‘how well the agencies communicate with other agencies, how well they do their commonwealth-state interaction, and again, how well they then translate that down to the regions.’351
Better coordination at a state level was seen as essential to speeding up the process of infrastructure provision. This is particularly important for social infrastructure projects when there is a requirement to match funds from different tiers of government. The way the lack of such coordination slows down projects was illustrated by the Shire of Roebourne, which had secured $1.7 million for a child care centre after two to three years of seeking complementary funding
347 Mr John Fischer, Executive Director Transport Industry Policy, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p6. 348 Submission No. 13 from Mid West Gascoyne Area Consultative Committee, 27 April 2007, p3. 349 Submission No. 10 from Department of Industry and Resources, 23 April 2007, pp9-10. 350 Mr Don Weaver, Director of Strategies and Legislation, Department of Local Government and Regional Development, Transcript of Evidence, 15 October 2007, p6. 351 Ibid.
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from the state and federal government, as well as from the private sector. However, by the time the funding had been secured, the Shire was unable to find a contractor due to the skills shortage in the area, which arguably would not have occurred had the project been able to receive funding in a timely manner.352
BHP Billiton similarly highlighted the need for better coordination at state level. Learning from its Ravensthorpe experience, BHP Billiton identified the need for a ‘more authoritative concentration of direction’, that is, a unit or body that could say:
“Look, this needs to be done to line up with other agencies to get the overall benefit of the bigger picture in place quickly.” We would absolutely endorse that. In endorsing that, we feel that that role, that project management capability, that authority that we are speaking about, should be very close to the Premier of the state.353
The need for better coordination at state level will be discussed further at (f) below.
At a local level, in the absence of a coordinating body, relationships between local government, development commissions and Area Coordinating Committees varies from region to region. WALGA was of the view that because planning is limited to local government areas rather than regional areas, effective coordination is hampered:
… you get massive overlaps between the ACC function and regional development functions. Again, I think if local governments can get their act together and form legal entities that are regional bodies, there is that money from ACC and regional development commissions that can be much better focused.354
DLGRD, however, felt that coordination for smaller projects, such as those provided through the Regional Infrastructure Fund, was already in place to a reasonable degree as a result of the program’s requirements to leverage funding from other sources.355
The Chamber of Minerals and Energy summed up the general view of the evidence provided by stating that ‘coordination by industry and government of investment in infrastructure is critical, given the high costs of development in regional areas, and central to this must be agreement of priorities of regional infrastructure needs.’356 This view was also taken by the Great Southern Development Commission, which stated that ‘even if increased revenue support from the Federal
352 Mr Allan Moles, CEO, Shire of Roebourne, Briefing, 30 July 2007. 353 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Transcript of Evidence, 2 April 2008, pp4,5-6. 354 Cr Bill Michell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, p6. 355 Mr Don Weaver, Director of Strategies and Legislation, Department of Local Government and Regional Development, Transcript of Evidence, 15 October 2007, p3. 356 Submission No. 15 from Chamber of Minerals and Energy, 3 May 2007, p12.
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Government is not forthcoming, an improved stand alone model will be required for WA.’357 Proposals for such a coordinated approach will be considered in Chapter 5.
Finding 11
Lack of coordination between federal, state and local governments has a major impact on the provision of infrastructure in regional areas.
Finding 12
Increased coordination between all tiers of government, including within state government, will assist in the timely provision of infrastructure.
(d) The unfair cost burden on local government in the provision of infrastructure and maintenance of infrastructure provided by third parties
Local government has responsibility for providing infrastructure in Western Australia, including infrastructure pertaining to water, sanitation, local road networks, recreational facilities, libraries and other community facilities. In addition, it maintains facilities that are the jurisdiction of the federal government, such as telecommunications, air transport and postal facilities. It is also responsible for maintaining and replacing infrastructure transferred to it by developers and other companies, such as local roads in a subdivision.358 Therefore, arrangements for the funding of infrastructure projects concern local government, as they have the potential to significantly affect the resources necessary for local government to operate effectively.
Submissions and evidence from agencies and organisations representing local government called for increased funding to address local governments’ increasing responsibilities in infrastructure provision. For these organisations, the unresponsiveness of the commonwealth government to state government infrastructure expenditure is replicated in the relationship between state and local governments. WALGA puts forward the position that:
Just as the State’s welfare outcomes are diminished because it does not share in the economic benefits of infrastructure investment, so [too] Local Government’s investments
357 Submission No. 7 from Great Southern Development Commission, 20 April 2007, p4. 358 Submission No. 8 from Western Australian Local Government Association, 20 April 2007, pp4-5.
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and maintenance of infrastructure is reduced because it does not enjoy the associated benefits.359
Indeed, these organisations used the same argument put forward by state government agencies, that is, increased investment in infrastructure in regional areas equates to increased returns for government and other social and economic benefits. Furthermore, as local government has such a large role in providing, maintaining and replacing infrastructure, it must be properly funded to do so if the economic benefits flowing from such infrastructure provision are to be realised.
A concern raised in a number of submissions was the direct or indirect cost-shifting to local government in relation to the responsibility for constructing or maintaining infrastructure. This is in part the result of lack of consideration of long-term infrastructure requirements, as well as perceived ambiguity regarding responsibility for such infrastructure. The Peel Development Commission expressed a common view in saying that:
Local governments have indicated a need for clarification of the roles across the various levels of government in regards to funding infrastructure projects. There also needs to be consideration given to the ongoing funding implications of a project.360
The Department of Local Government and Regional Development also reiterated the historical lack of consideration of the long-term costs of infrastructure:
The government itself is sometimes over-focused on the physical building, and then there is nothing for the maintenance and ongoing operation. There is also an issue with staffing for maintenance, particularly in remote areas.361
There are a number of examples of the fiscal responsibility borne by local governments for infrastructure that benefits the community beyond their jurisdictions, particularly in regional areas. In Western Australia, there are 21 regional airports run by local governments, which have responsibility for ‘repairs and maintenance, and ongoing security issues’, and must implement federal government requirements, such as integrating trace detection X-ray machines into airports.362 In the case of the latter, the X-ray machine itself is provided by the federal government, but the costs incurred in the installation of the machine are the responsibility of local government.
Similarly, mining companies use local roads to transport goods in the absence of rail services, but local governments are left to fund the subsequent maintenance and repairs of roads, and no
359 Ibid., p5. 360 Submission No. 14 from Peel Development Commission, 3 May 2007, p3. 361 Mr Don Weaver, Director of Strategies and Legislation, Department of Local Government and Regional Development, Transcript of Evidence, 15 October 2007, pp8-9. 362 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, p5.
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transport assessment impact is undertaken as part of the approvals process for mining projects.363 WALGA pointed to this as something occurring increasingly as a result of the mining boom:
We see more and more these days that the junior miners, for instance, go initially for a couple of years on road, until they can get enough throughput to then go on rail. The classic is in the mid west at the moment. We have at least four - Gindalbie, Mid West, Murchison and Mt Gibson - that are all roading at the moment and trying to get their stocks up before they go to rail. The majority of that, before they hit Great Northern Highway, is on local roads.364
As local roads comprise 72 per cent of all roads in Western Australia, the impost on local government is significant.
In response to the pressure on local governments to maintain and replace infrastructure, WALGA has undertaken a Systemic Sustainability Study, and is:
… pushing councils to do all-of-life costing, so that we do not get dragged into supplying the swimming pool at $1million and then find out that the real cost of it over 10 years is goodness knows what. That needs to be done for all built infrastructure, whether it is a recreation facility or a road.365
However, the evidence presented to the Committee suggests that this process is not yet formalised, and the burden on local government remains.
The urgency of fully considering the role of local government is highlighted in the submission from the Chamber of Commerce and Industry, which points out that:
… local government is experiencing pronounced difficulties in adequately maintaining [its] infrastructure … only 75 per cent of the amount required to maintain local government’s non-financial assets in their current condition is being provided.366
This suggests a significant shortfall in the funding needed for the maintenance of the infrastructure that directly supports regional communities and the possibility of costly emergency maintenance and repair in the future.
A related issue raised in the North West visit, and again in the evidence from WALGA and the DLGRD, concerned the State Agreement Acts which allow resource companies to pay local government rates based on ‘unimproved value’ on construction camps, even though these camps can accommodate up to 1,200 people who then use the town’s facilities.367 368 This places a
363 Ibid. 364 Ibid. 365 Ibid., p9. 366 Submission No. 19 from Chamber of Commerce and Industry Western Australia, 29 May 2007, p19. 367 Mr Allan Moles, CEO, Shire of Roebourne, Briefing, 30 July 2007. 368 Submission No. 8 from Western Australian Local Government Association, 20 April 2007, pp3-4.
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disproportionate responsibility on local governments to provide services for which they receive no set contribution, although mining companies take the position that they already make substantial contributions to the community. DoIR is coordinating a review of State Agreements aimed at:
…demistifying what those contributions actually are or are not and comparing them with a reasonable rating level under those valuations. Until that data is out, it is difficult to say who has been where in the debate.369
The results of the review are expected to be released in 2008.
Mechanisms to relieve local governments of any unfair funding burden are discussed further in Chapter 5.4.
Finding 13
Local government is bearing an increasing responsibility for infrastructure provision and/or maintenance in regional areas.
Finding 14
Local governments in areas supporting major resource projects are not receiving adequate funding to build, maintain and replace infrastructure.
Finding 15
Local governments appear to be negatively impacted by some State Agreement Acts whereby companies are able to secure rating concessions in some instances.
(e) Federal government investment
Federal government investment in Western Australian infrastructure is provided indirectly through the Commonwealth Grants Commission, and directly through Specific Purpose Payments. Most submissions were critical of both the amount and the method of federal funding under the previous government. The criticism was based not on a sense of injustice at Western Australia funding the more populous and less economically robust states; because as the Department of Treasury and Finance pointed out, Western Australia has been a mendicant state in the past, and has benefited
369 Mr Don Weaver, Director of Strategies and Legislation, Department of Local Government and Regional Development, Transcript of Evidence, 15 October 2007, p7.
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from the process it now regards less favourably.370 Rather, it was about the possible future impact on the nation of significant resource projects being held up or indeed moved elsewhere due to inadequate investment in infrastructure. As the Goldfields Esperance Development Commission observed, the national risk associated with federal underfunding of Western Australian infrastructure is potentially high. The GEDC concluded that:
Without significant investment in a broad range of infrastructure, the region will be unable to capitalise on all opportunities which will be to the detriment of State and national economies; which put another way, really means the people of Australia will miss out.371
The evidence presented expressed concern about the method and principles behind the commonwealth’s funding decisions, and gave practical examples of where federal processes of funding have impacted negatively on specific projects.
(i) Commonwealth returns to the state
Commonwealth Grants Commission
As mentioned in Chapter 1, the Commonwealth Grants Commission operates on a principle of horizontal fiscal equalisation (HFE), redistributing funds in order to ensure that all states have an approximately equal capacity to provide services to their populations. Its method for calculating the relative return each state receives from the federal government is reviewed every five years, with the next review due to take place in 2010. Western Australia will be providing input to the review through the Department of Treasury and Finance.
There was general support for the view put forward in DTF’s submission, which detailed six rationales for why the Commonwealth should return more funding to Western Australia for the purpose of social and economic infrastructure. The six rationales were:
the Commonwealth Grants Commission (CGC) process has reduced the State’s capacity to fund its own infrastructure, as it is equalising away much of the revenues to the State from the current economic boom, while not adequately recognising the costs faced by the State to provide services and infrastructure for its growing economy.
Commonwealth investment in Western Australia is likely to achieve good returns for the nation …
to avoid skewing investment decisions away from projects that mainly benefit the rest of the nation financially, the Commonwealth needs to contribute a commensurate share of project costs.
370 Mr Mark Altus, Director, Revenue and Intergovernmental Relations, Department of Treasury and Finance, Transcript of Evidence, 15 October 2007, p3. 371 Submission No. 11 from Goldfields Esperance Development Commission, 23 April 2007, p2.
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there is evidence that Commonwealth support for Western Australia is low, compared with what it is doing in other States and also in terms of its performance in its own areas of responsibility …
Commonwealth equity or debt guarantees could help Western Australia finance public infrastructure that would otherwise threaten the State’s credit rating.
Commonwealth industry assistance could more effectively be provided through infrastructure grants …. rather than firm-specific assistance.372
The full submission is included at Appendix Six.
DTF explained that HFE saw Western Australia’s GST grant share for 2007-2008 cut by $291 million as a consequence of strong growth in Western Australia’s revenue capacity relative to other states. Subsequent to the submission, it was announced that Western Australia’s grant share would be cut by a further $350 million in 2008-2009.373 The HFE principle recognises expenditure needs, and Western Australia receives extra annual GST funding on account of its above average costs of providing services, but in 2007-2008 and 2008-2009 this will be more than offset by the reduction in GST funding.
DTF argued that the CGC’s methods significantly understate Western Australia’s service provision costs as a number of factors are not considered. These include the cost of state initiatives to promote economic development (such as multi-user infrastructure); the true cost of financing infrastructure growth; the extra cost of improving services in remote areas; and the real cost pressures that apply in remote areas.374 DTF stated that in summary, the commonwealth needs to provide assistance to Western Australia to recognise the capacity constraints imposed by the CGC process.
The Department for Planning and Infrastructure supported DTF’s attempt to secure a better commonwealth deal that reflects the rapidly increasing costs associated with infrastructure provision in the state, and noted that:
…[there is a] need to work with the priorities of the particular Federal Government in place, as well as [being conscious of] the role of the Commonwealth Grants Commission (CGC) in redistributing resources amongst the States and Territories. The costs of infrastructure externalities associated with the resource boom needs to be drawn to the attention of the CGC so that the real costs to WA are not underestimated with current financial models.375
372 Submission No. 18 from Department of Treasury and Finance, 21 May 2007, p1. 373 Hon. Eric Ripper, MLA, Treasurer, Western Australia, Legislative Assembly, Parliamentary Debates (Hansard), 11 March 2008, p634. 374 Submission No. 18 from Department of Treasury and Finance, 21 May 2007, pp3-4. 375 Submission No. 16 from Department for Planning and Infrastructure, 11 May 2007, pp1-2.
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DoIR criticised the former federal government for ‘not providing sufficient support to Western Australia across a number of key infrastructure areas’, giving the particular example of the Burrup, as outlined above on p61. DoIR outlined the population pressures and services required as a result of Western Australia’s ageing demographic, and suggested that in the future there will be increasing competition for limited funds. It mooted that the state may therefore choose to support social infrastructure to relieve short term pressure rather than fund economic infrastructure with long-term benefits, particularly when such benefits are not returned to the state. DoIR viewed that in the absence of increased federal support for economic infrastructure, the consequences for the state and the commonwealth would be considerable. Using a similar argument to DTF, DoIR pointed out that:
…if the Commonwealth Government fails to appropriately respond to addressing vertical fiscal imbalance issues … it could become increasingly difficult for the State Government to allocate significant monies to any worthwhile projects whereby the bulk of the public revenue benefits accrue to the Commonwealth Government.376
The associated risk is that the state may also be tempted to fund economic infrastructure projects that will provide a quicker return to the state, at the expense of high-cost, long-life infrastructure of the sort typically associated with resource projects.
This position was also reflected in the CCI’s argument in favour of the principle of subsidiarity. This principle states that ‘the lowest sphere of government that can efficiently create the infrastructure should do so, while the funding should be provided by the sphere of government that benefit[s] from the infrastructure’s creation’. According to CCI, the need to apply subsidiarity to funding arrangements is particularly pertinent in cases such as the Gorgon gas project and development of the Burrup Peninsula whereby the state government is largely responsible for the provision of common-user infrastructure but the bulk of tax revenues flow to the commonwealth. The risk in these instances is for advantageous projects to be overlooked by the state because the benefits flow to the commonwealth. This potentially skews investment decisions by the state in favour of projects where most benefits are captured by the Western Australian community, even though this may not be to the greatest national advantage.377 APPEA also supports the principle of subsidiarity, claiming that ‘on this basis, a strong case exists for greater commonwealth funding of key infrastructure assets like roads and port facilities’.378
Specific Purpose Payments
Specific Purpose Payments (SPPs) are grants from the commonwealth to the states that are required to be expended on areas specified by the commonwealth. They have been used increasingly since the Whitlam government to ensure that states use federal funds for particular
376 Submission No. 10 from Department of Industry and Resources, 23 April 2007, pp13-14. 377 Submission No. 19 from Chamber of Commerce and Industry, 29 May 2007, pp17-18. 378 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, p14.
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purposes.379 By 2000, 40 per cent of commonwealth grants were SPPs, with ‘a large proportion of these grants … being made in policy areas that were not included in the original constitutional powers granted to the Commonwealth, such as health and education.’380 SPPs are sometimes referred to as ‘tied’ funding.
DTF reported that in 2007-2008 Western Australia expected to receive:
$2.3 billion in SPPs ‘to’ the State to support specific areas of State responsibility;
$0.8 billion in SPPs that are on-passed ‘through’ the State, primarily to local governments and private schools; and
$0.7 billion in North West Shelf royalty payments (which are reported as SPPs because of the Commonwealth’s constitutional jurisdiction over offshore areas).381
While the arguments regarding CGC payments concern the quantum of funding available to the states, concern about SPPs have centred on conditions attached to the funding, which mean that the state has less flexibility to spend funds on areas that are of strategic, economic or social importance. In addition, in some cases the state is obliged to spend its own revenue matching funds on federally determined projects or else lose access to federal monies, further reducing the state’s flexibility to allocate spending according to its own priorities.382
In 2007-2008, health, education and transport comprise the major categories of SPPs to the states, constituting approximately 76 per cent of all SPPs.383 The transport category encompasses AusLink payments and is therefore important to Western Australia in the context of infrastructure spending to support major resource projects. About $15.8 billion is spent nationally on the AusLink program over five years, of which $9.7 billion is allocated to projects on the AusLink network.384 The AusLink network is comprised of ‘land transport links’ identified by the commonwealth and funded jointly by the federal, state and territory governments.385 The network in Western Australia includes, among other roads, the inland road route from Perth to Port Hedland via Meekatharra and Newman.
379 Parliament of Australia, Specific purpose payments and the Australian federal system, 14 January 2008, p2. Available at: www.apo.org.au/linkboard/results.chtml?filename_num=189802 Accessed on 18 January 2008. 380 Ibid., p3. Accessed on 18 January 2008. 381 Department of Treasury and Finance, ‘Specific Purpose Payments’, 12 December 2007. Available at: www.dtf.wa.gov.au/cms/tre_content.asp?ID=1909 Accessed on 14 December 2007. 382 Department of Treasury and Finance, ‘Conditions on Specific Purpose Payments’, 7 November 2007. Available at: www.dtf.wa.gov.au/cms/tre_content.asp?id=1918 Accessed on 14 December 2007. 383 Australian Government, ‘Budget 2007-08’, nd. Available at: www.budget.gov.au/2007-08/bp3/html/index.htm Accessed on 16 April 2008. 384 Mr John Fischer, Executive Director Transport Industry Policy, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p6. 385 Department of Infrastructure, Transport, Regional Development and Local Government, ‘Network and Planning’, 8 December 2006. Available at: www.auslink.gov.au/whatis/network/index.aspx Accessed on 17 December 2007.
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The general view from submissions and other evidence was that AusLink does not recognise the challenges of Western Australia’s geography nor the specific needs of its resource-based industry, usually situated in remote and regional areas. Western Australia contains 25 per cent of Australian roads, but receives only 10.7 per cent of AusLink’s road and rail funding.386 This is seen as particularly problematic given Western Australia’s contribution to national merchandise exports, and its reliance on road and rail transportation to do so.
DPI, as the lead agency dealing with the federal Department of Infrastructure, Transport, Regional Development and Local Government (formerly the Department of Transport and Regional Services), and the Minister for Planning and Infrastructure, expressed major issues with AusLink funding due firstly to insufficient funds allocated to Western Australia, and secondly, and most importantly, to the lack of fit between the AusLink network and Western Australia’s freight task. In relation to the second point, DPI outlined examples of where the state’s priorities did not fit with AusLink:
Particularly in the current climate in terms of where growth is occurring, we do not necessarily always spend funds in the highest priority orders, and funds are linked to a network, so we have argued that it should be spread, particularly when you understand the road network excludes most of the ports around Western Australia. It includes the road network between Geraldton and Port Hedland; and so there is a significant portion of our export ports - Dampier, Port Hedland, Geraldton - which are excluded from receiving any funds from the AusLink network. Similarly Esperance and Albany ports are excluded. So when you have got the key areas of infrastructure, which are ports in effect, excluded from the ability to attract federal funds, then that is a barrier that we see.387
DPI described a similar barrier existing in relation to road funding. DPI stated that the inland route identified by AusLink ‘ma[de] sense when the hinterland was being developed in the 1970s and 1980s and the Commonwealth funded that network at the time’, but that ‘priorities change in terms of where the needs are and that is what the limitation is.’388 This refers to the fact that many resource projects in the North West, including those on the Burrup Peninsula, are leading to increased traffic on the coastal route between Perth and Port Hedland. DPI suggested changes to the scope of AusLink to address the existing disparity between the AusLink National Network and Western Australia’s freight task.389
The Minister for Planning and Infrastructure similarly identified that ‘a serious shortcoming in Western Australia is that AusLink does not acknowledge the major contribution to trade through non-bulk ports such as Port Hedland, Dampier, Geraldton, Albany and Esperance’.390 In highlighting the deficiencies in federal transport funding, the Minister provided examples of
386 Mr John Fischer, Executive Director Transport Industry Policy, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p6. 387 Ibid. 388 Ibid., p7. 389 Submission No. 16 from Department for Planning and Infrastructure, 11 May 2007, p4. 390 Hon. Alannah MacTiernan, MLA, Minister for Planning and Infrastructure, letter, 13 November 2007, p2.
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transport projects currently excluded from AusLink that nonetheless provide a revenue benefit to the federal government. These are typically ‘those that provide access to resource developments from which the Federal Government receives royalties or that provide access to ports from which export income is derived’. Completed transport projects to which the state government has contributed significant funds include: Marble Bar Road, which provides for the movement of mineral products from the east Pilbara to the Port of Port Hedland; and the Mount Magnet to Leinster Road, which provides an all-weather route from the north eastern Goldfields to the Geraldton Port. Some significant projects that have been committed to include: the Bunbury Port Access Road (Stage 1); and improvements to South Coast Highway east of Ravensthorpe, which will facilitate the transport of mineral product from the RNP to the Esperance Port.391
The Mid West Gascoyne Area Consultative Committee used AusLink as an example of the general shortcomings of the former federal government’s funding and processes which were ‘plainly not adequate in meeting need.’392 MWGACC criticised AusLink’s lack of responsiveness and slow timeframes:
In the AusLink case we are working now on a strategy that will not be relevant for a number of years. In the meantime we will see iron ore road trains increase to one every four minutes (24 hours x 7 days) well before the end of current arrangements that were negotiated in 2004 after being discussed from the late ‘90s … we believe that given the timing problems, there needs to be some form of reactive, fast-track system developed and funding arrangements that are responsive to opportunities.393
While there was a more specific discussion of the federal-state fiscal relationship by Western Australian Government agencies, other organisations expressed views that wholly or partially supported the state government’s call for greater funding and greater consultation with the state in relation to decisions regarding tied funding, such as that received through the AusLink program. WALGA formally endorsed the DTF’s Discussion Paper on Commonwealth-State Relations,394 with its criticism of existing rationales for funding ratios and its discussion of the benefits of more effective fiscal relationships between the federal and state governments.395 The Goldfields Esperance Area Consultative Committee (GEACC), while being relatively circumspect in identifying Commonwealth shortcomings, suggested that the states and territories should work together to put forward alternative methodologies to the CGC.396 The GEACC submission echoed the call for greater commonwealth assistance for infrastructure supporting major resource projects, stating it was justified because of the substantial benefits flowing to the federal government from such projects, despite the fact that the majority of the costs of establishing common user
391 Ibid., pp3-7. 392 Submission No. 13 from Mid West Gascoyne Area Consultative Committee, 27 April 2007, p2. 393 Ibid. 394 Department of Treasury and Finance, ‘Discussion Paper on Commonwealth-State Relations’, March 2006. Available at: www.dtf.wa.gov.au/cms/tre_content.asp?ID=775. Accessed on 17 September 2007. 395 Submission No. 8 from Western Australian Local Government Association, 20 April 2007, p2. 396 Submission No. 2 from Goldfields Esperance Area Consultative Committee Inc, 10 April 2007, p7.
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infrastructure supporting major resource projects are borne by the state government.397 MWGACC was blunter in its criticism of the former federal government’s financial assistance for infrastructure provision:
The only real help from the Commonwealth is in the Invest Australia initiative, with some minor inducements for project proponents through AusIndustry of Austrade programs. These arrangements are plainly not adequate in meeting need. Invest Australia has given inducements to the tune of $150m in once instance, but there is generally too little money which may be partly due to the pressures of the increasingly tight timeframes demanded in the modern world market.398
(ii) Impact of other commonwealth policies on infrastructure provision
The CCI suggested that although the commonwealth’s direct responsibilities for infrastructure have diminished over time, it also has a significant indirect role through its responsibility for the ‘taxation regime affecting companies, which can influence company decisions on whether and how to invest’, and also ‘engages in investment attraction activities such as the provision of subsidies and incentives for developers of major projects.’399 CCI viewed the commonwealth’s replacement of accelerated depreciation with ‘“the strategic investment coordination process”’ as ‘a retrograde step’, and pointed out that ‘accelerated depreciation was particularly important in the case of risky projects and infrastructure, where there is a greater than usual risk of the value of an asset on completion being significantly less tha[n] its cost to create.’400 This matter is discussed further in Chapter 5.5.
Apart from this, CCI was critical of the process of providing subsidies and incentives to industry, which led to the curtailing of otherwise promising resource projects, as in the Methanex example outlined above. CCI stated that:
… the inconsistencies in both the objectives and the methods for provision of state and Commonwealth funding have meant that the two levels of government are working at cross purposes, while the secretive and discretionary nature of Commonwealth decision-making on assistance makes a coordinated and mutually reinforcing approach between jurisdictions impossible.401
CCI also supported DTF’s criticism that the federal government’s track record showed that it was unable to ‘pick winners’ amongst resource projects, further reducing the amount of funding available as a result of its poor selection processes.402 CCI discussed methods for improving the coordination and provision of infrastructure in Australia. This, along with other proposed
397 Ibid., p8. 398 Submission No. 13 from Mid West Gascoyne Area Consultative Committee, 27 April 2007, p2. 399 Submission No. 19 from Chamber of Commerce and Industry, 29 May 2007, p15. 400 Ibid., p16. 401 Ibid. 402 Ibid.
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solutions to improve Western Australia’s financial relationship with the federal government, will be discussed further in Chapter 5.
Finding 16
To date, the federal government’s approach to providing funds to Western Australia has not recognised the unique pressures involved in infrastructure delivery in the state.
(f) State government planning, investment and coordination
State government agencies have responsibility for infrastructure and/or funding related to transport planning, ports, rail, roads, energy, some telecommunications, schools and health facilities. However, as the CCI noted, ‘the responsibility and funding of infrastructure is an issue that has grown increasingly complex in recent years.’403
Investment in infrastructure projects comes through responsible state agencies, and must be approved by the Cabinet’s Expenditure Review Committee, which receives advice from the Department of Treasury and Finance.404 There are a number of agencies and committees which coordinate different aspects of infrastructure provision. The range of such committees in Western Australia is best represented by an excerpt from the submission from the Department for Planning and Infrastructure, included at Appendix 5, which lists 16 infrastructure-related committees associated with the Western Australian Planning Commission and the Department of Industry and Resources alone. WAPC has responsibility for the Infrastructure Coordinating Committee, a body which brings public sector agencies together to consider infrastructure provision in Western Australia, particularly in relation to land use planning.405 However, it has no statutory powers and its role is relatively informal. The Office of Development Approvals Coordination within DPC was established in order to ‘provide a central coordinating body within government for major projects.’406 However, it does not work to plan anticipated projects, but works with project proponents once a project is identified.
In this context, it is therefore unsurprising that a number of submissions suggested that state funding needed to be underpinned by more effective and coordinated planning and approvals processes.
403 Ibid., p5. 404 Mr Michael Court, Director, Asset Planning and Management, Department of Treasury and Finance, Transcript of Evidence, 15 October 2007, p7. 405 Mr Michael Court, Director, Asset Planning and Management, Department of Treasury and Finance, Transcript of Evidence, 15 October 2007, p7; Mr Jeremy Dawkins, Director, Western Australian Planning Commission, Transcript of Evidence, 15 October 2007, p12. 406 Mr Daniel Smith, Deputy Chief Policy Advisor, Department of the Premier and Cabinet, Transcript of Evidence, 15 October 2007, p10.
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(i) Coordination and planning
Infrastructure provision by the Western Australian Government was seen by a number of state and other agencies and organisations as lacking important aspects of planning and particularly coordination, although there was recognition of recent moves to address these issues.
The Regional Development Council (RDC) suggested that Western Australia is dealing with a legacy where there has been little coordination at a state government level for infrastructure development. As well as this, there was previously ‘no structured mechanism for assessing infrastructure priorities across infrastructure types … [with] different approaches used in each agency [for] infrastructure planning.’407 The RDC noted that there have been improvements by the state government in infrastructure planning and allocation, such as the 2004 Capital Investment Prioritisation and Resource Allocation Process (CIPRAP), the 2005 Strategic Asset Management Framework (SAMF) and the approaches proposed in the 2006 State Infrastructure Strategy Green Paper. However, these approaches, while positive, were viewed as being not sufficiently comprehensive:
The SAMF and CIPRAP together provide a consistent and structured approach to infrastructure planning. They fall short of providing a state-wide, whole-of-government approach to infrastructure assessment, prioritisation and planning, however. In particular, they do not include a ground-up approach to prioritisation across classes of infrastructure. The [DTF] Green Paper goes further, but still does not propose a coordinated, ground-up process.408
CCI expressed dissatisfaction with the extent of planning and its transparency:
The level of infrastructure planning and coordination across the public sector … could be a lot better. One of our concerns … is that in terms of understanding what the government’s plans are for infrastructure, the public as a whole has no understanding other than for the next 12 to 18 months; that is, there is no articulation of the full program over, say, the forward estimate period, which is the published documents that the government releases, let alone a longer period of say, 10 years. In the green paper that came from the infrastructure task force, which the government established, my recollection is that the planning horizon inside government should be at least a 10-year period, if not a 20-year period. If that planning is occurring inside government for that period of time, why does the broader community only know about 18 months?409
According to DPI, Western Australia has a good planning record commencing with the 1955 Stephenson-Hepburn plan and subsequent developments and bodies, such as the WAPC. However, changing conditions have put pressure on DPI’s role in coordination, and there is now a requirement for more integration:
407 Submission No. 1 from Regional Development Council, 30 March 2007, p12. 408 Ibid., p16. 409 Mr John Langoulant, Chief Executive, Chamber of Commerce and Industry, Transcript of Evidence, 26 September 2007, p5.
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… with the pressures of the amount of growth that is happening, we have certainly found a lot of pressure to just deal with the volume of applications, and perhaps have not spent as much time coordinating agencies, getting them all to the table, about long-term planning … at the moment [programs such as the metropolitan development and country land development programs] are not as forward looking and as well coordinated and proactive as they should be.410
DPI also outlined the state-wide shortcomings in present coordination and planning in the state:
There is a gap in the State’s planning for infrastructure with the current processes. Not all of the larger infrastructure projects are covered by SIAC [the Standing Inter-Agency Committee of Chief Executive Officers] and the Ministerial Council. The IPAS [Integrated Project Approvals System] … only covers those major projects where the proponents volunteer to use it. The Major Government Projects Taskforce (run by Housing & Works) does not cover projects less than $20M. The State Infrastructure Strategy (SIS) run by DTF also excludes infrastructure projects less than $20M in the metropolitan area and less than $5M in the regions… At present the ICC [WAPC - Infrastructure Coordinating Committee] does not report to Government as such, and is more an informal information sharing forum.411
This suggests that while the existing bodies and groups are meeting specific needs, there is a gap in the overarching coordination and planning of infrastructure. While the State Infrastructure Strategy in its proposed form will go some way towards addressing the issue of a lack of high- level planning, it will not address methods of coordination, nor will it ensure planned infrastructure is delivered in a timely manner.
DoIR suggested that booming conditions and the inherent uncertainty of major project development has affected planning, and that an effective long-term policy such as the State Infrastructure Strategy could be linked to workforce planning, which itself has a large impact on infrastructure provision.412
The need for an integrated approach to infrastructure planning and coordination, such as articulated by the RDC above, was also identified in a number of submissions from regionally based agencies. GEACC suggested that the state, in consultation with local government, should develop ‘a comprehensive, whole-of-government’ infrastructure strategy that would include:
Integration of the provision of all classes of social and economic infrastructure in support of development;
An economic development focus to all infrastructure planning;
410 Ms Dorte Ekelund, Deputy Director General, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p19. 411 Submission No. 16 from Department for Planning and Infrastructure, 11 May 2007, p6. 412 Mr Peter Kiossev, General Manager, Infrastructure Policy, the Department of Industry and Resources, Transcript of Evidence, 21 November 2007, p6.
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Policies for direct government involvement;
Mechanisms to identify opportunities for private sector and involvement of government business enterprises in infrastructure provision, and facilitation of such involvement;
Mechanisms to assess relative costs and benefits of infrastructure on a case-by- case basis;
An integrated view of infrastructure, including “hard” infrastructure … “soft” infrastructure … and both traditional and new economy infrastructure (e.g. innovation, skills development); and
Cabinet-level and cross-agency co-ordination of infrastructure planning, including redefined roles for existing infrastructure co-ordination bodies.413
GEACC’s involvement in negotiating funding for infrastructure to support the Ravensthorpe nickel project414 suggested the pressing need for such a unified, coordinated and comprehensive suite of policies.
Other regionally based organisations suggested similar solutions to the issue of fully informed infrastructure planning. The Great Southern Development Commission (GSDC) emphasised the need for the state government to involve the regions in planning, advocating ‘an improved stand alone model’ for Western Australia, such as a Regional Infrastructure Advisory Board, to ensure that the state government receives ‘detailed advice … on the regions’ infrastructure needs’.415 The Peel Development Commission, after consulting with local governments in its area, stated that the regions should be formally engaged in identifying infrastructure priorities.416 Similarly, the MWGACC suggested a ‘cross-government, apolitical body to acknowledge the importance of infrastructure and its provision.’417
It would appear from these submissions that regional areas are most acutely aware of, and affected by, the lack of a state-wide approach to ensuring that infrastructure provision occurs in line with stated government priorities. It is also apparent that need exists for an approach which is progressed within an integrated framework providing certainty for project proponents, business, community and local governments alike.
Other organisations also suggested that a more effective planning process would improve the provision of infrastructure in regional areas. The Pilbara Area Consultative Committee stated that the process for approving infrastructure development and releasing land was more important in
413 Submission No. 2 from Goldfields Esperance Area Consultative Committee Inc, 10 April 2007, p6. 414 Ibid., pp 2-4, 8. 415 Submission No. 7 from Great Southern Development Commission, 20 April 2007, p3. 416 Submission No. 14 from Peel Development Commission, 3 May 2007, p1. 417 Submission No. 13 from Mid West Gascoyne Area Consultative Committee, 27 April 2007, p4.
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that region than funding.418 In relation to securing residential land release, Fortescue Metals Group stated that although the need for such land was clear in Hedland early in their project, and FMG was operating under State Agreement Acts that meant the company was obliged to employ a residential workforce where possible, it was difficult to get state government agencies to release land to house the workforce.419 FMG and the local shire were conscious of the impact of the housing shortage, but the same urgency, it was suggested, was not felt by the responsible agencies.
DoIR shared the concern about the necessity for releasing and pre-approving areas of suitable land for industry in the context of the state needing to remain competitive in attracting business investment. According to DoIR, Western Australia has difficulties competing with overseas jurisdictions that have fully serviced industrial sites such as those at Jurong Island in Singapore, Point Lisas in Trinidad and Ras Laffan in Qatar, and suggested that more projects may be lost as a result of a lack of ready-to-go infrastructure to attract such projects.420 DoIR considered that such losses are ‘“invisible” but … serious.’421
To enable Western Australia to retain the interest of such companies, DoIR proposed the creation of ‘large-scale “project ready” industrial estate land and infrastructure’, or Strategic Industrial Areas (SIAs).422 Reinforcing this concept, APPEA drew attention to the importance of ‘strategically located, well serviced industrial land’ for the development of the petroleum industry and the encouragement of downstream processing.423 DoIR identified a number of potential SIAs in regional areas, including the Burrup and Maitland Estate/West Intercourse Island in Dampier; Oakajee in Geraldton; Boodarie in Port Hedland; Kemerton in Bunbury and Mirambeena in Albany.424 However, given the long life of ‘large and lumpy’ infrastructure, DoIR pointed out that careful assessment needs to take place before such projects commence, and that there needs to be a recognition that the benefits accruing from these undertakings can take a long time to realise. The Kwinana Strategic Industrial Area was cited as an example of both the risks and benefits of the long-term planning of this nature, with DoIR pointing out that Kwinana, established in the late 1950s, experienced a slow take-up rate in its first 20 years, which then accelerated in the following 20 years.425
Methods for better, more extensive planning and land release for industrial sites were also considered important by the WAPC, which emphasised that such planning is inseparable from
418 Mr Peter Hinchcliffe, Executive Member, and Mr Gary Slee, Treasurer, Pilbara Area Consultative Committee, Briefing, 30 July 2007. 419 Mr Julian Tapp, Head of Government Relations, Fortescue Metals Group, Transcript of Evidence, 10 March 2008, pp9,12. 420 Submission No. 10 from Department of Industry and Resources, 23 April 2007, p10. 421 Ibid. 422 Ibid., pp9-10. 423 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, p10. 424 Submission No. 10 from Department of Industry and Resources, 23 April 2007, p10. 425 Mr Peter Kiossev, General Manager, Infrastructure Policy, Department of Industry and Resources, Transcript of Evidence, 21 November 2007, p11.
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meeting foreseeable or expected infrastructure demand in regional areas. WAPC suggested that there have been three aspects that have enabled successful long-term planning in the metropolitan area, including planning for industrial areas such as Kwinana: the statutory region scheme (the Metropolitan Region Scheme), the Metropolitan Region Improvement Tax (MRIT), and state planning commissions, the most recent one being the WAPC itself.426
The Metropolitan Region Scheme (MRS) was gazetted in 1963, and provides for ‘urban growth, transport corridors and regional open space.’427 The MRS comprises a set of maps and a scheme text, which together define future land use within the Perth metropolitan region through the application of broad zones and reservations. Local government town planning schemes must be consistent with the MRS and are required to provide the detail for the areas that they cover.428 Changes to the MRS must be approved by Parliament, ensuring that significant developments are transparent and accountable. The MRIT, which was established in 1960, supports the implementation of the MRS by imposing a tax on the ‘aggregated unimproved value’ of land in the metropolitan area.429 The revenue from the tax is then used to purchase land ‘for roads, open spaces, parks and similar public facilities.’430
WAPC provided evidence that despite the fact DTF does not in principle support hypothecated taxes, the MRIT has been extremely effective in both saving public expenditure allowing for properly planned industrial and domestic growth, and providing an attractive metropolitan environment.431 Effective long-term planning, as allowed by the MRS and the MRIT, produce a ‘planning dividend’:432 cost savings based on comparing the price of land purchased through the MRIT as a result of planning decisions with the price of the same land had it been purchased on an as-needs basis. The WAPC also pointed out that land purchased in such a way becomes ‘a state asset … without contributing to borrowings and as such helps to maintain ratings and restrain the cost of money for all government purposes.’433 The WAPC provided a number of examples supporting the use of such a tax, such as securing the route to the harbour at Naval Base as a result of the early identification of the strategic importance of the harbour. Because the corridor had been identified through long-term planning, WAPC was able to secure the required land for
426 Mr Jeremy Dawkins, Chairman, Western Australian Planning Commission, Transcript of Evidence, 15 October 2007, pp2-3. 427 Ibid., p2. 428 Western Australian Planning Commission, ‘Schemes’, nd. Available at: www.wapc.wa.gov.au/Region+schemes/default.aspx Accessed on 16 April 2008. 429 Department of Treasury and Finance. Available at: www.dtf.wa.gov.au/cms/osr_content.asp?id=241. Accessed on 4 December 2007. 430 Ibid. 431 Mr Jeremy Dawkins, Chairman, Western Australian Planning Commission, Transcript of Evidence, 15 October 2007, p8. 432 Western Australian Planning Commission, The case for retaining the metropolitan region improvement tax, WAPC, Albert Facey House, April 2007, p5. 433 Ibid.
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$2.65 million; had the same land purchased at the time it was required, the cost would have exceeded $7.24 million.434
In relation to planning in the regions to support the development of major infrastructure projects, the WAPC suggested that extending such a scheme to regional areas could obviate some of the difficulties with planning and funding for major infrastructure supporting large resource projects. While certain other regions of the state have recently implemented region schemes such as the Peel and Bunbury regions, funding to support these schemes is by an annual allocation from the Consolidated Fund. According to the DPI, the Consolidated Fund contributes $7 million to the implementation of these schemes. The MRIT by comparison is a ‘highly cost-beneficial instrument which has successfully enabled effective planning for future infrastructure as well as the protection of important conservation and public access areas’.435 DPI states that since growth within the state is no longer limited to the Perth metropolitan region, there would be merit in extending the MRIT ‘as a way to provide funds to undertake the required level of planning and delivery of regional infrastructure’.436 Given the success of the integrated planning and funding approach of the MRS-MRIT, the Committee concurs that possible adaptation of the scheme to regional areas is worth investigating further.
Finding 17
While there have been improvements in recent years, the state government needs to take a stronger role in the coordination, planning and provision of infrastructure in regional Western Australia.
Finding 18
While the State Infrastructure Strategy will improve planning, the coordination of infrastructure provision also needs to be addressed.
Finding 19
Timely land release is vital for both soft and hard infrastructure provision.
434 Mr Jeremy Dawkins, Chairman, Western Australian Planning Commission, Transcript of Evidence, 15 October 2007, p5- 6; Western Australian Planning Commission, The case for retaining the metropolitan region improvement tax, WAPC, Albert Facey House, April 2007, p15. 435 Submission No. 16 from Department for Planning and Infrastructure, 11 May 2007, p5. 436 Ibid.
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Finding 20
The Metropolitan Region Improvement Tax and the Metropolitan Region Scheme have been cost-effective in securing land for the purposes of effective infrastructure provision in the metropolitan area.
Recommendation 1
That the Western Australian Government investigate the merits of adapting the Metropolitan Region Scheme and Metropolitan Region Improvement Tax to regional areas.
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CHAPTER 5 STRATEGIES FOR IMPROVING FUNDING ARRANGEMENTS FOR WESTERN AUSTRALIAN INFRASTRUCTURE PROJECTS
There were, both in submissions and in briefings and hearings, a range of suggestions put forward to improve funding arrangements for infrastructure supporting major resource projects in regional Western Australia. There is broad support amongst stakeholders for prioritisation and coordination, as well as increasing the level of funding and/or investment.
5.1 Mechanisms for increasing Western Australia’s share of federal funding
It should be noted that the Western Australian Government attempted to seek increased funding from the former federal government on numerous occasions and via a number of avenues. In January 2007, the Western Australian Treasurer, Hon. Eric Ripper, MLA, proposed the establishment of a National Export Infrastructure Fund, and, in at attempt to garner support, invited the Hon. Peter Costello, MP, the former Federal Treasurer, to Western Australia to observe the challenges in regional infrastructure provision as a result of Western Australia’s economic growth. Among other things, Mr Costello was reported to have responded that:
the Commonwealth has provided significant funding for roads and other projects;
the Commonwealth Government “will not … take over the Western Australia State Government responsibility for infrastructure”; and
Western Australia was well placed to meet its expenditure responsibilities.437
The change in federal government in November 2007 saw the appointment of a Minister for Infrastructure, the Hon. Anthony Albanese, MP. The role of the Minister and developments in infrastructure as an area of government concern will be discussed further below. The new government’s commitment to assisting Western Australia in relation to infrastructure to support major resource projects is yet to be determined. Some mechanisms by which this might be facilitated however are outlined in the following sections.
(a) Reforming federal-state financial relations
The disproportionate cost of infrastructure provision borne by the state and local governments (compared to the federal government) has been discussed in relation to a number of major projects in Chapter 3. The issue was also raised in Chapter 4 in relation to various submissions to the Inquiry. This imbalance between revenue benefits and infrastructure costs is not a stand alone issue but is rather one element of the broader issue of federal-state financial relations. According to DoIR:
437 Submission No. 18 from Department of Treasury and Finance, 21 May 2007, p2.
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State (and local) governments provide much of Australia’s public infrastructure but are heavily reliant on Commonwealth funding, which is often for a specific purpose. The Commonwealth has exclusive access to the most efficient tax bases (i.e. household and business income and consumption expenditure). These taxes give the Commonwealth significantly more revenue than it needs to fund the services for which it is responsible.
Commonwealth-State financial relations remain a significant ongoing issue associated with the provision of infrastructure funding to the State. A number of Commonwealth and State investigations have reported on the imbalances between the distribution of revenue benefits between the States and the corresponding asymmetrical treatment of costs.438
The difference between revenues available to two tiers of government (in this instance commonwealth and state) and their respective spending responsibilities is referred to as ‘Vertical Fiscal Imbalance’ (VFI). As outlined previously, in order to offset the imbalance, the commonwealth makes payments to the states in the form of untied grants derived primarily from the GST, and Specific Purpose Payments, which must be spent in accordance with conditions set by the commonwealth.439 SPPs, which require states to expend funds in a specific manner, are administered through various mechanisms, agreements and legislation. For example, the Department of Education, Science and Training funds schools, technical colleges and some other educational programs, the Australian Healthcare Agreement funds public hospitals, and AusLink provides road and rail funding.
Compared to other federations, ‘Australia represents the most acute case of VFI, with the Commonwealth controlling all major tax sources and engaging in massive annual transfers to the states… The Australian states rely on transfers for almost half their entire budgetary needs’.440 Indeed, commonwealth grants are the single largest source of revenue for Western Australia and constitute 40 per cent of general government operating revenue in 2007-2008. Of this commonwealth derived revenue, 56 per cent comprises general purpose grants and the remaining 44 per cent comprises SPPs.441 The importance of commonwealth grants to WA cannot be understated as according to DTF:
To be able to fund those soft infrastructure items, we do need this funding from the commonwealth to make up the gap in our own revenues.442
The transfer of funds from the commonwealth to the states however, has been blamed for economic inefficiencies. In their 2002 report, ‘Review of Commonwealth-State Funding’, Ross
438 Submission No. 10 from Department of Industry and Resources, 20 April 2007, p13. 439 Webb, R., The Commonwealth Government’s Role in Infrastructure Provision, Research Paper No. 8 2003-04, Commonwealth of Australia, Canberra, 1 March 2004, pp5-6. 440 Hueglin, T.O., and Fenna, A., Comparative Federalism. A Systematic Inquiry, Broadview Press Ltd, Ontario, 2006, p327. 441 Government of Western Australia, 2007-08 Budget. Economic and Fiscal Outlook. Budget Paper No. 3, Government of Western Australia, Perth, May 2007, p4 and p69. 442 Mr Mark Altus, Director Revenue and Intergovernmental Relations, Department of Treasury and Finance, Transcript of Evidence, 15 October 2007, p12.
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Garnaut and Vince Fitzgerald identified inefficiencies including the high overhead costs associated with the administration of general purpose grants and SPPs, and ‘dysfunctional attempts by the Commonwealth to micromanage service delivery by the States’ through the conditions imposed on SPPs.443 As previously mentioned, the principle of Horizontal Fiscal Equalisation is used by the Commonwealth Grants Commission to determine the distribution of GST revenue. HFE was also highlighted in the Garnaut/Fitzgerald report as a source of inefficiency as the method may well share the economic benefits of development around the nation but it fails to share around the costs of such development, which may impact unfairly on individual states.444
DTF identifies one particular consequence of VFI as being the disincentive to states to promote economic development since the greatest financial benefit accrues to the commonwealth which then redistributes this gain nationally. While the states may receive some of the gains back in the form of grants, the grants will not necessarily be directed back to the state which generated the gains. DTF goes further to suggest that a related consequence may be that decision making becomes skewed in favour of investments which benefit the Western Australian community.445
To address these inefficiencies, DoIR suggests that the commonwealth should reduce VFI by increasing the pool of funds distributed to the states. In so doing, DoIR does not advocate for a higher rate of GST but argues that since VFI implies that the commonwealth raises more revenue than it spends, that the commonwealth should be in a position to supplement funds placed into the pool.446 In a similar vein, DTF recommends a ‘commensurate sharing between the Commonwealth and Western Australia of the costs of infrastructure projects where a substantial proportion of the benefits accrue to the rest of the nation’.447 Specific mechanisms for increasing the federal contribution to infrastructure funding including a possible national infrastructure fund and revised AusLink funding are discussed later in this Chapter.
At a more fundamental level, Garnaut and Fitzgerald identified a need for reform of commonwealth-state funding arrangements. This includes a proposal for a new funding model, which at its core embraces principles such as:
joint responsibility between the commonwealth and states for setting broad priorities at the strategic level;
an end to ‘input controls and micromanagement’ from other levels of government; and
443 Committee for the Review of Commonwealth-State Funding, Review of Commonwealth-State Funding Final Report, report prepared by Garnaut, R., and Fitzgerald, V., Review of Commonwealth-State Funding, Melbourne, August 2002, p1. 444 Ibid., p2. 445 Submission No. 18 from Department of Treasury and Finance, May 2007, pp7-8. 446 Submission No. 10 from Department of Industry and Resources, 20 April 2007, p15. 447 Submission No. 18 from Department of Treasury and Finance, May 2007, p8.
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rationalisation of existing functions and funding arrangements, including SPPs.448
From Western Australia’s perspective, while a more efficient federal-state financial relationship creates potential for the freeing up of more commonwealth funds to be spent on pressure point infrastructure projects, it is unlikely that the significant changes required in this regard will occur in the short-term. The Committee notes however, that the incumbent federal government has recognised the importance of federal-state funding arrangements and has made reform in this area a priority. At its meeting in December 2007:
COAG agreed to begin changing the nature of Commonwealth-State funding arrangements by agreeing to focus more on outputs and outcomes, underpinned by a commitment from the Commonwealth Government to provide incentive payments to drive reforms. This will include reform of Specific Purpose Payments…449
The Committee also notes that developments in this area are promising as the federal government is engaging in ongoing discussion with the states. At a Ministerial Council Meeting in January 2008, the federal and state Treasurers agreed to rationalise the number of SPPs and reduce their number without reducing their value. The commitment to focus on outcomes and outputs with regard to SPP arrangements was reaffirmed and Treasurers agreed in principle to the commonwealth issuing incentive payments to drive reforms in key areas of the economy.450 In March 2008, following consideration of the recommendations from the Treasurers, COAG agreed on key elements of a new Intergovernmental Agreement on Commonwealth-State financial arrangements, which is expected to be finalised and ready for consideration by COAG in December 2008. The new financial framework will involve reducing the number of SPPs from the 92 currently in existence to five or six new national agreements focusing on core government services such as health, affordable housing, and vocational education. New National Partnerships agreements will also be introduced. According to COAG, these will ‘provide incentives for reforms, or …funding for specific projects, in areas of joint responsibility, such as transport…’. To enable greater accountability, COAG also agreed to an expanded role for the COAG Reform Council to include reporting on the performance of national SPPs, and monitoring the pace of activity in COAG’s agreed reform agenda.451
448 Committee for the Review of Commonwealth-State Funding, Review of Commonwealth-State Funding Final Report, report prepared by Garnaut, R., and Fitzgerald, V., Review of Commonwealth-State Funding, Melbourne, August 2002, pp191-192. 449 Council of Australian Governments’ Meeting, Communiqué, COAG, Melbourne, 20 December 2007. Available at: www.coag.gov.au/meetings/201207/cooag20071220.pdf Accessed on 20 December 2007. 450 Ministerial Council Meeting, Communiqué, Brisbane, 14 January 2008. Available at: www.health.gov.au/internet/main/publishing.nsf/Content/B9FC43D8DF2B6B7ACA2573D0001A0266/$File/health%20 min%20communique140108.pdf Accessed on 15 January 2008. 451 Council of Australian Governments’ Meeting, Communiqué, COAG, Adelaide, 26 March 2008. Available at: www.coag.gov.au/meetings/260308/docs/communique20080326.pdf Accessed on 27 March 2008.
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Finding 21
Federal-state financial relations impact on the provision of infrastructure funding to Western Australia.
(b) Negotiating favourable terms for revenues from offshore projects
One potential mechanism for increasing Western Australia’s share of federal funding would be for the state to secure a higher return of federal revenues from major resource projects. The Great Southern Development Commission supports an increased return of federal revenues especially that which has been sourced from ‘petroleum resource rent tax, income tax and company tax’.452 In terms of PRRT, should some form of revenue sharing arrangement be negotiated between the Commonwealth and Western Australia akin to that which applies to the North West Shelf (NWS), this would have definite implications for major offshore projects such as Gorgon and Pluto. As discussed briefly in Chapter 2.2, unlike other offshore projects the NWS is exempt from PRRT and is instead subject to a royalty sharing arrangement between the Commonwealth and Western Australia. This arrangement has provided long lasting benefits to the state. In 2006-2007, Western Australia received NWS royalties to the value of $669 million. In 2007-2008, estimated royalties are in the order of $699 million and it is anticipated that royalties will increase in the immediate future as a result of greater LNG production from the NWS.453
The circumstances leading to the development of the NWS royalty sharing arrangement are reviewed below. Whether potential exists for similar arrangements to be applied to other offshore projects is also examined.
Background to the NWS
Woodside acquired exploration permits for a large expanse of the NWS off the Western Australian Pilbara coast in 1963. Major gas discoveries made in the 1970s led to the initiation of the NWS project454, which has since evolved to its present form comprising offshore platforms and a major gas processing facility on the Burrup Peninsula. An overview of current NWS operations is provided in Chapter 3.4.
Two features which defined the NWS project in its early stages of development in the 1970s were the domestic gas (domgas) agreement made with the State Energy Commission (SECWA), and negotiations between the state and federal governments concerning revenue from the project. In the first instance, in 1977 the Western Australian Government under Sir Charles Court committed SECWA to taking 250 million cubic feet a day of gas of which 95 per cent of contracted quantity would be on a ‘take or pay’ basis (i.e. even if SECWA did not take the gas it still had to pay for it,
452 Submission No. 7 from Great Southern Development Commission, 16 April 2007, pp3-4. 453 Government of Western Australia, 2007-08 Budget. Economic and Fiscal Outlook. Budget Paper No. 3, Government of Western Australia, Perth, May 2007, p69 and p77. 454 Chemlink Pty Ltd, Available at: www.chemlink.com.au/woodside.htm Accessed on 19 April 2007.
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but could physically take the gas later).455 The contracted amount caused controversy as it was reportedly an overestimate of domestic gas demand and unduly onerous on the state. This was later found to be the case and the agreement was renegotiated in 1985.456 Significantly however, the state’s domgas obligation played a role in securing the royalty sharing arrangement, and is discussed further below. LNG export was another significant component of the NWS project. Take or pay contracts for the supply of LNG were secured with eight major Japanese power and gas utilities in 1985, leading to the commencement of LNG export in 1989.457 458 Petroleum taxation - NWS a special case
A brief overview of Australia’s offshore petroleum taxation regime is provided in Chapter 2.2, including the division of offshore taxation powers between the commonwealth and the states, which evolved in the 1970s. It was in this context that the Western Australian Government advocated for, and eventually secured a royalty sharing arrangement with the Commonwealth for the NWS. The royalty split with Western Australia is approximately two thirds the monthly royalty collected by the commonwealth.459 The royalty sharing arrangement was reflected in an amendment to the Petroleum (Submerged Lands) Act 1967 (Cth) in 1985, which made provision for the commonwealth to waive part of its royalties from the NWS project in favour of the Western Australian Government.460 At the time, the commonwealth government explained the royalty concession in terms of assisting Western Australia to honour its domgas contract obligations to the NWS operators. The commonwealth reasoned that sufficient cash flow to the NWS proponents had to be ensured to enable the financing of the export phase of the project and therefore protect the project’s viability.461
The commonwealth had received royalties and excise for offshore petroleum production since the late 1960s. This was largely replaced in 1987 by the PRRT except for areas covered by production licences granted on or before 1 July 1984. The NWS was therefore exempt and existing royalty arrangements continued to apply.462 463 Exempting the NWS from the PRRT was
455 Murray, R., (1991). From the edge of a timeless land. A history of the North West Shelf Gas Project. Allen & Unwin Pty Ltd, Sydney, p75. 456 Ibid., p122-123. 457 Ibid., p134. 458 Chemlink Pty Ltd, Available at: www.chemlink.com.au/woodside.htm Accessed on 19 April 2007. 459 Parliament of Australia Parliamentary Library, ‘Bills Digest No. 184 1999-2000’, Available at: www.aph.gov.au/Library/pubs/bd/1999-2000/2000bd184.htm Accessed on 17 April 2007. 460 Hon. K.C. Beazley, MP, Minister for Defence, Parliament of Australia, House of Representatives, Parliamentary Debates (Hansard), 23 April 1985, p1697. 461 Parliament of Australia Parliamentary Library, ‘Bills Digest No. 184 1999-2000’, Available at: www.aph.gov.au/Library/pubs/bd/1999-2000/2000bd184.htm Accessed on 17 April 2007. 462 Ibid. 463 Hon. J.C. Kerin, MP, Minister for Primary Industries and Energy, Parliament of Australia, House of Representatives, Parliamentary Debates (Hansard), 21 October 1987, p1215.
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considered necessary to retain the viability of the project given the large scale infrastructure investment that had occurred over a long lead time, and given that critical supply contracts had only just been signed with Japan. It was argued at the time that had the PRRT been implemented, it risked contracts being renegotiated, with potentially damaging consequences.464
Royalties applicable to the NWS have therefore remained subject to the Petroleum (Submerged Lands) (Royalty) Act 1967 (Cth). The Offshore Petroleum (Royalty) Act 2006 (Cth) was recently introduced with the intention of replacing the earlier Royalty Act. The rewrite makes minor modifications to update the legislation and provide greater clarity, but does not alter policy and therefore does not have any financial consequences.465 Like its predecessor, the Offshore Petroleum (Royalty) Act 2006 (Cth) defines the royalty rates applicable to the NWS as varying between 10 and 12.5 per cent of the wellhead value depending on the size of the area covered by the production licence.466
While it would be ideal if similar royalty sharing arrangements could be applied to other offshore projects in Western Australia, it is unlikely that the arrangement particular to the NWS could be replicated. It is evident from the history of the NWS above that the royalty sharing arrangement was the product of a precise set of circumstances. The importance of individual personalities in securing the outcome for Western Australia also cannot be underestimated. The Premier at the time, Sir Charles Court, has been credited with being instrumental in negotiating the arrangement with the commonwealth, for example, it has been said that:
The only reason we do reasonably well out of the North West Shelf royalties is because Sir Charles Court as Premier managed to persuade Malcolm Fraser, the Prime Minister at the time, to give us a decent deal.467
This is not to say that some other form of revenue sharing arrangement should not be pursued for current offshore developments. There is a strong argument that ‘the return of royalties to the state needs to be seen in relation to the State’s extensive efforts to promote development and provide supporting infrastructure and services’468. DTF elaborates on this argument by stating:
There is a strong case for implementation of an agreement between the Australian and Western Australian Governments to share the benefits from future petroleum projects beyond the State’s coastal waters.
464 Parliament of Australia Parliamentary Library, ‘Bills Digest No. 184 1999-2000’, Available at: www.aph.gov.au/Library/pubs/bd/1999-2000/2000bd184.htm Accessed on 17 April 2007. 465 Hon. W.G. Entsch, MP, Parliamentary Secretary to the Minister for Industry, Tourism and Resources, Parliament of Australia, House of Representatives, Parliamentary Debates (Hansard), 23 June 2005, p21-22. 466 Australian Government Department of Industry, Tourism and Resources, Available at: www.nml.csiro.au/content/itrinternet/cmscontent.cfm?objectID=C809D7AC-7276-4B3F-B275E359297C2515 Accessed on 17 April 2007. 467 Hon. N.F. Moore, MLC, Member for Mining and Pastoral Region, Western Australia, Legislative Council, Parliamentary Debates (Hansard), 26 June 2001, p1343. 468 Committee for the Review of Commonwealth-State Funding, Review of Commonwealth-State Funding Final Report, report prepared by Garnaut, R., and Fitzgerald, V., Review of Commonwealth-State Funding, Melbourne, August 2002, p158.
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The State plays a key role in the promotion, development and management of offshore projects, incurring significant expenditures to address the on-shore infrastructure requirements, and potentially bearing certain financial risks. The State would have a greater incentive to promote such projects if it received a share of the revenues.
…
The high prospectivity of the submerged lands off the Western Australian coast, with a number of new LNG projects possible in coming years (e.g. Browse Basin, Woodside’s Pluto project and BHP Billiton’s Scarborough project), and the potentially large returns to the Australian community, make this an important national issue.469
The Committee concurs with this argument and supports efforts by the state government to secure a share of royalties from major offshore developments of national significance. According to DTF, due to the CGC redistribution process, any new revenues secured by Western Australia would similarly be redistributed through HFE unless specifically exempted from this process by the federal government. An alternative would be for the federal government to directly fund infrastructure costs associated with resource projects.470 As mentioned in Chapter 3.2 (p27), the incumbent federal government has pledged the establishment of a Western Australian Infrastructure Fund by setting aside 25 per cent of PRRT revenue from the Gorgon (and possibly Pluto) project/s. The merits of a dedicated state infrastructure fund are discussed in more detail below.
Finding 22
There is a strong case for a greater sharing of benefits from offshore resource developments between the commonwealth and Western Australia.
Recommendation 2
That the Western Australian Government expedite the formalisation of a revenue sharing arrangement with the commonwealth for the Gorgon (and possibly Pluto) project/s.
469 WA Department of Treasury and Finance, Discussion Paper on Commonwealth-State Relations. An Economic and Financial Assessment of how Western Australia fares, Government of Western Australia, Perth, April 2006, pp37-38. 470 Ibid., p38.
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(c) Re-examining tied funding to the state in the area of infrastructure provision, particularly in relation to AusLink
The provision of Specific Purpose Payments to Western Australia was seen by state government agencies as inhibiting the ability of the state to direct funding to the areas it determines, and diminishing its capacity to support the development of infrastructure to support major resource projects. In relation to infrastructure supporting major resource projects, this was demonstrated most acutely with the allocation of AusLink funding.
As noted in Chapter 4, the evidence to this Inquiry suggests that AusLink is perceived as being inadequate to Western Australia’s road infrastructure needs, despite its stated aim to ‘combine essential transport elements for a competitive and efficient economy, and well connected cities, regions and communities.’471 The evidence generally purported that AusLink did not recognise the challenges of Western Australia’s geography nor the specific needs of its resource-based industry, usually situated in remote and regional areas. It further suggested that the distribution of funding was inequitable, with Western Australia receiving only 10.7 per cent of AusLink’s road and rail funding despite containing 25 per cent of Australian roads.472 This is seen as particularly problematic given Western Australia’s contribution to national merchandise exports and its reliance on road and rail transportation to do so.
In its first hearing with the Committee on 14 November 2007, DPI expressed a common held concern regarding the insufficiency of funds allocated to Western Australia, citing the lack of fit between the AusLink network and Western Australia’s freight task as an issue, whereby the routes to major ports were excluded from funding in spite of being crucial to the movement of resource- based products. Similarly, with road funding, DPI stated that the inland route identified by AusLink ‘ma[de] sense when the hinterland was being developed in the 1970s and 1980s and the Commonwealth funded that network at the time’, but that ‘priorities change in terms of where the needs are and that is what the limitation is.’473 Both at the November 2007 hearing and in its submission, DPI suggested changes to the scope of AusLink to address the existing disparity between the AusLink National Network and Western Australia’s freight task.474
DPI also indicated in the following commentary that forthcoming amendments to the AusLink program, requiring a matching financial contribution from the state, would prove problematic:
In 2009-10 a new AusLink program will be released. One of the elements of that new program is that the commonwealth will require a state contribution. It will be 50 per cent of the funding of projects in the urban area and 20 per cent in the rural area. That exacerbates the problem I just described, in that not only do you not have the opportunity to allocate funds where the highest priorities are but, secondly, you also have to contribute
471 AusLink. Available at: www.auslink.gov.au/ Accessed on 20 September 2007. 472 Mr John Fischer, Executive Director Transport Industry Policy, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p6. 473 Ibid., p7. 474 Submission No. 16 from Department for Planning and Infrastructure, 11 May 2007, p4.
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to projects that may not be where your highest needs are. So the removal of some of those barriers to where funds are allocated, particularly in the current climate, as I said, if you really want to be allocating funds which have the greatest impact in terms of efficiencies of freight tasks, then you want a bit more flexibility than currently exists.475
As well as tying the state’s funds to projects that may not be aligned to state priorities, the new program may also create difficulties with the budget approvals process between the state and commonwealth. If, for example, the state government is unable to contribute the amount set down by AusLink’s conditions in a set budgetary period, the project then may be on hold for an extended period.
The incumbent federal government has stated it is committed to re-examining federal-state financial relations, including attempting to reduce the number of SPPs and ‘shift[ing] in focus from red tape to results’.476 However, preliminary indications are that AusLink arrangements remain unchanged for the present time until the National Transport Commission (NTC) provides advice on ‘a national transport policy framework, including a national infrastructure plan’, which will be used to ‘support the establishment of Infrastructure Australia’.477 The NTC is an independent statutory body responsible for submitting recommendations regarding policy and legislation to the Australian Transport Council (comprising federal, state and territory Transport Ministers) for approval. The NTC consults with industry and all levels of government to ‘establish priority areas for transport regulatory reform’ and also has a coordination and monitoring role with respect to approved reforms.478
The NTC has published advice to the commonwealth Minister for Infrastructure, Transport, Regional Development and Local Government, identifying priority areas for a national transport policy, existing problems in each area, and possible solutions. Transport Ministers supported the need for a national policy framework and plan on 29 February 2008 and have undertaken to individually develop aspects of a national transport policy (reflecting the priority areas) in time for the next meeting of the Australian Transport Council on 2 May 2008.479 Aspects of the national plan and policy to be developed include ‘Infrastructure Planning and Investment … Capacity Constraints and Supply Chain Performance … [and] Governance’,480 suggesting that areas that have been of concern to agencies such as the Department for Planning and Infrastructure, local
475 Mr John Fischer, Executive Director Transport Industry Policy, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p6. 476 Prime Minister of Australia, ‘First 100 Days’, February 2008. Available at: www.pm.gov.au Accessed on 1 April 2008. 477 National Transport Commission, ‘A transport plan for Australia’, 15 February 2008. Available at: www.ntc.gov.au/NewsDetail.aspx?page=A0240030550000002000254 Accessed on 1 April 2008. 478 National Transport Commission, ‘About the NTC’, nd. Available at: www.ntc.gov.au/ViewPage.aspx?page=A02300407400440020 Accessed on 21 April 2008. 479 National Transport Commission, ‘National Transport Policy Framework, A New Beginning, Volume 2’, February 2008. Available at: www.ntc.gov.au/filemedia/Publications/NationalTransportPlanVol2Mar2008.pdf Accessed on 21 April 2008. 480 National Transport Commission, ‘New beginning: National Transport Policy Framework’, 29 February 2008. Available at: www.ntc.gov.au/ViewPage.aspx?page=A02316402400420020 Accessed on 1 April 2008.
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governments and resource companies will be addressed, although the manner and extent to which they are addressed remain to be seen.
DPI has indicated that the scope of AusLink needs to be broadened to encompass the land transport access challenges facing many regional towns with ports.481 DPI has also highlighted that: bulk freight and regional ports should be recognised during the second phase of AusLink; that important regional ports (such as Dampier and Port Hedland) should be included on the AusLink Network; and that access corridors to these ports should not be precluded from future commonwealth funding opportunities.482
The Committee notes that $22.3 billion of funding was allocated towards AusLink 2 in the 2007- 2008 federal Budget. AusLink 2 is intended to contribute $16.8 billion towards projects on the AusLink National Network over the period 2009-2010 to 2013-2014 although project details are yet to be announced.483 On a promising note, Infrastructure Australia will reportedly investigate restructuring AusLink to achieve greater integration of ports into the network. Not wishing to overemphasise potential changes to AusLink however, the federal Minister for Infrastructure has stated that this will be but one of the options examined by Infrastructure Australia as it develops a priority list for investment.484
Finding 23
AusLink in its present form does not adequately cater for Western Australia’s freight task, in terms of road infrastructure needs and access challenges associated with regional ports.
Recommendation 3
That the Western Australian Government make submission to the federal Minister for Infrastructure to re-examine AusLink 2 with a view to accommodating a better fit between the AusLink network and Western Australia’s freight task, including access arrangements around regional ports.
481 Submission No. 16 from Department for Planning and Infrastructure, 11 May 2007, p4. 482 Mr John Fischer, Executive Director Transport Industry Policy, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p7. 483 Australian Government, ‘Budget 2007-08’, nd. Available at: www.budget.gov.au/2007-08/ministerial/html/dotars-31.htm Accessed on 17 April 2008. 484 Connors, E., and Hepworth, A., ‘Transport plan to fix bottlenecks’, Australian Financial Review, 15 April 2008, p1.
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5.2 Improving efficiency of federal government processes
(a) Creation of a federal infrastructure strategy and fund/s
As a result of the evidence received, it is clear to the Committee that a coherent federal approach to infrastructure is necessary to ensure that the infrastructure requirements of the states and territories are viewed and funded equitably. The Committee notes that recent federal government initiatives appear to address some of the deficiencies identified by this Inquiry, however, it is still too early to assess the effectiveness of these measures.
The Committee is optimistic that the federal government has appointed a dedicated Minister for Infrastructure, namely, the Hon. Anthony Albanese, MP. The Minister’s second reading speech, delivered on 21 February 2008, indicated that the government’s intention is to ‘lift… investment in new physical infrastructure while at the same time making better use of the nation’s existing infrastructure’, which the government believes will ‘raise productivity, fight inflation and maintain economic growth.’485 The Minister cited a 2004 report from the Australian Council for Infrastructure Development, which ‘estimated that the lack of investment in the nation’s infrastructure over many years cost the economy around $6.4 billion a year in lost production.’486 The Minister also quoted from a report by Sir Rod Eddington, just prior to the public announcement that he would be appointed Chair of Infrastructure Australia, to the effect that the relief of bottlenecks can be achieved through small-scale infrastructure projects, such as constructing or improving roads to ports.487
In relation to coordinating with the states to build up the condition and amount of the country’s infrastructure, the Minister referred to the necessity of ‘long-term planning where [federal] governments predict and anticipate infrastructure needs and demands’, noting that this relies on ‘the cooperation of all Australian governments … as well as the involvement of all sectors of the economy, both public and private.’ 488 The Minister also recognised that the consequences of not seeking cooperation from all governments and sectors ‘inevitably results in a loss of national income’,489 which concurs with the Committee’s view of why infrastructure provision should be better coordinated and better funded by the Commonwealth.
In order to create a body to facilitate infrastructure coordination, the Commonwealth Government introduced the Infrastructure Australia Bill 2008 to the House of Representatives on 21 February 2008. The Bill proposes the formation of Infrastructure Australia, a statutory advisory council that will produce an ‘integrated long-term planning framework across jurisdictions for the
485 Hon. Anthony Albanese, MP, Minister for Infrastructure, Transport, Regional Development and Local Government, Parliament of Australia, House of Representatives, Parliamentary Debates (Hansard), 21 February 2008, p9. 486 Ibid. 487 Ibid., p10. 488 Ibid. 489 Ibid.
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coordinated provision of infrastructure’,490 as well as ‘develop a strategic blueprint for the nation’s future infrastructure needs … [i]n partnership with the states and territories and in consultation with the private sector and local government.’491 The organisation will have 12 council members, comprising five private sector, three commonwealth and three state members, and one local government member.492 To support the work of Infrastructure Australia, there will be an office of Infrastructure Coordination, a statutory office which will sit in the Department of Infrastructure, Transport, Regional Development and Local Government.493
The role of Infrastructure Australia will be to advise government and other stakeholders on:
nationally significant infrastructure priorities;
policy and regulatory reforms desirable to improve the efficient utilisation of national infrastructure networks;
options to address impediments to the development and provision of efficient national infrastructure;
the needs of users; and
possible financing mechanisms.494
Hon. Anthony Albanese, MP, also indicated in the second reading speech that:
Infrastructure Australia’s immediate task will be to undertake a national infrastructure audit to determine the capacity and condition of nationally significant infrastructure, including in the areas of water, energy, transport and communications, and in so doing it will consult widely, including with the owners and operators of existing infrastructure assets. The audit will identify gaps, deficiencies, impediments and bottlenecks across these important sectors of the national economy as well as take into account expected future demand. This information will inform the development of the infrastructure priority list to guide future investment decisions. Infrastructure Australia’s first priority list will be completed within 12 months and presented to the Council of Australian Governments in March 2009.495
490 Ibid. 491 Ibid. 492 Hon. Gary Gray AO, MP, Parliamentary Secretary for Regional Development and Northern Australia, Briefing, 27 February 2008. 493 Infrastructure Australia, ‘The structure and responsibilities of the Infrastructure Australia board and staff’, 23 January 2008. Available at: www.infrastructure.gov.au/department/infrastructureaustralia/structure.aspx Accessed on 20 March 2008. 494 Infrastructure Australia, ‘The role of Infrastructure Australia’, 23 January 2008. Available at: www.infrastructure.gov.au/department/infrastructureaustralia/role.aspx Accessed on 20 March 2008. 495 Hon. Anthony Albanese, MP, Minister for Infrastructure, Transport, Regional Development and Local Government, Parliament of Australia, House of Representatives, Parliamentary Debates (Hansard), 21 February 2008, p11.
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However, the important aspect of whether the federal funding of infrastructure will increase or be streamlined has not yet been defined. At its meeting on 26 March 2008, COAG agreed, in relation to infrastructure and in line with the federal government’s position outlined above:
… that a more nationally-coordinated approach to further infrastructure reform is critical to enhance Australia’s future economic performance and raise national productivity. As a critical first step, COAG agreed that the immediate priorities for Infrastructure Australia over the next 12 months were the completion of the National Infrastructure Audit by end 2008, the development of an Infrastructure Priority List for COAG consideration in March 2009 and the development of best practice guidelines of Public Private Partnerships for COAG’s consideration by October 2008.496
While these are important priorities, and there is a clear need for audit and prioritisation to occur, the Committee notes that there is no discussion of increasing funding for infrastructure provision. The Committee recognises that the incumbent federal government has committed to providing some infrastructure funding through the Building Australia program,497 as well as providing the previously discussed percentage of royalties from the future revenue of the Gorgon (and possibly Pluto) project/s to a Western Australian Infrastructure Fund,498 and commends the commonwealth for its recognition of the necessity of considering new methods of funding infrastructure.
However, from the Committee’s perspective, there are a number of uncertainties relating to the funding and coordination of infrastructure provision by the federal government. The principal area of uncertainty relates to whether, how and by what mechanism Infrastructure Australia will change the amount and method of providing, federal funding to the states. To this end, the Committee commends to the federal government the Canadian model of Infrastructure Canada, suggesting it give particular consideration to the role of its funding arm, Building Canada, which enables the Canadian Government to provide planning and coordination on one hand, and predictable, targeted funding for infrastructure priorities on the other. The parallels between the Canadian and Australian federal systems of government also make the Canadian model particularly pertinent in terms of coordinating and funding mechanisms between the levels of government.
(b) The Canadian model
The Infrastructure Canada model was frequently suggested to the Committee as a useful one for the federal government to consider implementing to better address infrastructure needs and priorities. Infrastructure Canada is a department of the Canadian Government and was established in 2002. Infrastructure Canada performs a broad role in infrastructure planning and provision, including providing policy and research regarding infrastructure; coordinating infrastructure
496 Council of Australian Governments, ‘Council of Australian Governments’ Meeting 26 March 2008’, 26 March 2008. Available at: www.coag.gov.au/meetings/260308/index.htm#infrastructure Accessed on 27 March 2008. 497 Australian Labor Party, ‘Labor’s Building Australia Fund’, nd. Available at: www.alp.org.au/media/0505/msirii122.php Accessed on 26 March 2008. 498 Prime Minister of Australia, ‘Press conference, Karratha Western Australia’, 22 January 2008. Available at: www.pm.gov.au/media/Interview/2008/interview_0036.cfm Accessed on 26 March 2008.
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programs between federal, provincial and local government; and overseeing a National Transit Strategy.499
Infrastructure Canada also coordinates (and sets the strategies funded by) Building Canada, a long-term, (CAN) $33 billion infrastructure plan that is supported by a series of programs designed to meet Canada’s infrastructure needs.500 The premise of Building Canada is to provide ‘stable, flexible and predictable funding’ for Canadian sub-national governments (that is, provincial/territorial governments, and municipalities)501, by providing over half of its budget directly to these levels of government as ‘base funding’.502 This funding is allocated in different ways for different purposes, as outlined below, but is intended to give sub-national governments the ability to plan for the long-term and use funds in a flexible manner while still meeting ‘national, regional and local infrastructure priorities.’503
Building Canada’s first seven year plan runs from 2007-2014. Under this plan, a range of funding is provided for different purposes.
(i) Targeted funding
Building Canada’s targeted funding programs, which provide funding for specific purposes, include:
Building Canada Fund
The Building Canada Fund (BCF) is considered the ‘flagship’ of Canada’s infrastructure program, and will allocate (CAN) $8.8 billion over seven years. Based around the priorities of the national highway system, drinking water, wastewater, public transit and green energy, the allocation of funds is determined by population, with its major projects selected through negotiations between the federal government and the provincial/territorial governments.504 Projects funded through the
499 Infrastructure Canada, ‘About Us’, 18 January 2008. Available at: www.infrastructure.gc.ca/about- apropos/index_e.shtml Accessed on 30 January 2008. 500 Building Canada, ‘Building Canada - Modern Infrastructure for a Strong Canada’, 15 November 2007. Available at: www.buildingcanada-chantierscanada.gc.ca/plandocs/booklet-livret/booklet-livret-eng.html Accessed on 30 January 2008. 501 Government in Canada comprises the central government, 10 largely self-governing provinces and three territories administered by the central government (the equivalent of the federal government and state/territory governments in Australia). Municipal governments are set up by provincial legislatures and have the equivalent powers and functions of local governments in Australia. Information taken from Canada Online, ‘Parliament of Canada’, August 2005. Available at: http://canadaonline.about.com/cs/governmentbasics/a/canfedgov.htm Accessed on 22 April 2008. 502 Building Canada, ‘About Building Canada’, 23 January 2008. Available at: www.buildingcanada- chantierscanada.gc.ca/index-eng.html Accessed on 30 January 2008. 503 Building Canada, Building Canada - Modern Infrastructure for A Strong Canada, 2007, p24. Available at: www.buildingcanada-chantierscanada.gc.ca/plandocs/booklet-livret/booklet-livret-eng.html Accessed on 30 January 2008. 504 Building Canada, ‘Building Canada Fund’, 23 November 2007. Available at: www.buildingcanada- chantierscanada.gc.ca/funprog-progfin/target-viser/bcf-fcc/bcf-fcc-eng.html Accessed on 31 January 2008.
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BCF must find complementary funding, as the federal government will only provide up to 50 per cent of the funding for any project. Generally, municipal projects are funded on a one-third basis while privately owned projects will receive a maximum federal contribution of 25 per cent.
The BCF operates through the Major Infrastructure Component (MIC), which targets ‘larger, strategic projects of national and regional significance’ and the Communities Component (CC), which funds projects in communities of less than 100,000 residents.505 The MIC ensures that two- thirds of its funding is directed to the national priorities listed above. Selection of projects is made on merit, with all projects needing to meet ‘environmental, economic and quality of life’ criteria.506 CC projects will also be evaluated on these criteria, but the projects are chosen on the basis of their application, rather than as a result of meeting strategic objectives. Funding under the CC is intended to complement community funding from the Gas Tax Fund, discussed below.
Public-Private Partnership Fund
The (CAN) $1.25 billion Public Private Partnerships Fund is designed to encourage the development of Public Private Partnerships (PPPs), which Canada has not used extensively compared to the United Kingdom or Australia.507 The Canadian Government views the benefits of PPPs to include ‘access to private-sector capital and expertise; faster completion of projects; and the transfer of risk to the private sector.’508 The ‘P3 Fund’ will support innovative projects that provide an alternative to traditional government infrastructure procurement. As well as this, Building Canada is requiring that P3s are considered for large projects, with a view to improving the rate of PPP investment in infrastructure.
Gateways and Border Crossing Fund (managed by Transport Canada)
Like Western Australia, Canada has experienced an increase in economic activity, particularly exports, resulting in increased pressure on strategic transport corridors. The (CAN) $2.1 billion Gateways and Border Crossing Fund is designed to ‘improve the flow of goods between Canada and the rest of the world.’509
(ii) Base funding
‘Base funding’ programs, which are similar to untied grants, include:
505 Building Canada, ‘Building Canada: A New Approach’, 25 January 2008. Available at: www.buildingcanada- chantierscanada.gc.ca/plandocs/booklet-livret/booklet-livret09-eng.html#bcfund-mic Accessed on 31 January 2008. 506 Ibid. 507 Building Canada, ‘Building Canada - Modern Infrastructure for a Strong Canada’, 15 November 2007. Available at: www.buildingcanada-chantierscanada.gc.ca/plandocs/booklet-livret/booklet-livret-eng.html Accessed on 30 January 2008. 508 Building Canada, ‘Public-Private Partnerships Fund’, 15 November 2007. Available at: www.buildingcanada- chantierscanada.gc.ca/funprog-progfin/target-viser/pppf-fppp/pppf-fppp-eng.html Accessed on 31 January 2008. 509 Building Canada, ‘Gateways and Border Crossings Funds’, 25 January 2008. Available at: www.buildingcanada- chantierscanada.gc.ca/funprog-progfin/target-viser/gbcf-fpepf/gbcf-fpepf-eng.html Accessed on 31 January 2008.
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Gas Tax Fund
The Gas Tax Fund (GTF) returns a portion of federal petroleum tax revenues to municipalities in Canada in order to provide a stable pool of funds to be used for infrastructure, which will be increased from a total of (CAN) $600,000 in 2005-2006 to $2 billion a year from 2010. While municipalities must expend funds on ‘environmentally sustainable municipal infrastructure that contributes to cleaner air, cleaner water and reduced greenhouse gas emissions’, they also have scope to ‘pool, bank and borrow’ against the funds, thus the conditions provide for a great deal of flexibility for the type and timing of the infrastructure.510 The GTF also provides funding for community-based long-term planning. Communities must report on the expenditure of GTF funds annually. The Canadian Government announced in its 2008 Budget that the GTF would become a permanent measure to ensure stable long-term funding exists for municipal infrastructure. The annual (CAN) $2 billion commitment will therefore be extended beyond the original deadline of 2013-2014.511
GST Rebate (managed by Canada Revenue Agency)
Municipalities in Canada receive a rebate on the Goods and Services Tax they pay, which will increase from 57 per cent to 100 per cent between 2007 and 2014. This will provide more than (CAN) $5.8 billion to municipalities, which are able to use this funding for their own infrastructure priorities. The Canadian Government does not require municipalities to separately report back on their expenditure of these funds.
Provincial-Territorial Funding
The Government of Canada will provide (CAN) $2.275 billion of base funding over seven years to ‘support all of the categories … under the Building Canada Fund (BCF), as well as non-core National Highway System infrastructure and the safety-related rehabilitation of infrastructure in all BCF eligible categories.’512 While this funding is allocated up-front, provinces/territories are not obliged to spend funds in the year they are received in order to maximise flexibility.
(iii) Other Infrastructure Canada programs
Apart from the programs funded by Building Canada, Infrastructure Canada coordinates and funds strategic infrastructure programs such as the Public Transit Fund, the Canada Strategic Infrastructure Fund, Border Infrastructure Fund, Municipal Rural Infrastructure Fund, and the
510 Building Canada, ‘Gas Tax Rebate’, 15 November 2007. Available at: www.buildingcanada- chantierscanada.gc.ca/funprog-progfin/base/gtf-fte/gtf-fte-eng.html Accessed on 31 January 2008. 511 Department of Finance Canada, ‘Budget 2008: Chapter 3 - Economic Leadership’, 26 February 2008. Available at: www.budget.gc.ca/2008/plan/chap3c-eng.asp Accessed on 22 April 2008. 512 Building Canada, ‘Building Canada - Modern Infrastructure for a Strong Canada’, 15 November 2007. Available at: www.buildingcanada-chantierscanada.gc.ca/plandocs/booklet-livret/booklet-livret-eng.html Accessed on 31 January 2008.
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Infrastructure Canada Program. These programs take place in partnership with other federal, provincial/territorial and local governments, communities and/or the private sector.513
Finding 24
The Infrastructure Canada model has the advantage of coordinating all levels of government; providing a long-term strategic vision for infrastructure provision; connecting strategic priorities with funding; and, from the perspective of provinces, territories and local government, providing flexible funding with minimal conditions and reporting requirements attached.
Recommendation 4
That the Western Australian Government make submission to the federal government to investigate the Infrastructure Canada model, and in particular its mechanism for funding, Building Canada, with a view to streamlining the coordination and funding of infrastructure between the tiers of government in Australia.
5.3 Improving the efficiency of state government processes
The Committee concurs with the view of the Great Southern Development Commission, that ‘even if increased revenue support from the Federal Government is not forthcoming, an improved stand alone model will be required for WA.’514 Such a model has the potential to:
indirectly increase the funding available to infrastructure projects supporting major resource developments by eliminating red tape;
speed up infrastructure provision and therefore deliver cost efficiencies; and
ensure that best-practice is followed in the provision of infrastructure, including factoring in maintenance costs to ensure that local governments, for instance, are not left with cost imposts beyond their capacity.
To this end, the Committee examined the arrangements existing in other jurisdictions as well as the suggestions put forward in the evidence to the Inquiry to determine the best models for improving the provision of infrastructure in relation to major resource projects.
513 Infrastructure Canada, ‘Delivering Programs in Partnership’, 21 August 2007. Available at: www.infrastructure.gc.ca/about-apropos/partnerships_e.shtml#part Accessed on 31 January 2008. 514 Submission No. 7 from Great Southern Development Commission, 20 April 2007, p3.
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The Committee acknowledges that the Western Australian Government has already taken significant steps to improve infrastructure provision in the state. The CIPRAP, the SAMF and coordinating bodies such as the Infrastructure Coordinating Committee and the Office of Development Approvals Coordination all contribute to better planning, resource allocation and coordination. The recommendations below are intended to fortify this program, and to add value to the work already being undertaken.
(a) Creating plans for major infrastructure provision overseen by a Coordinator General
A statewide plan for infrastructure provision is necessary to prioritise projects and direct resources in the most effective manner, and to provide certainty to project proponents and the community alike. The Committee believes that the State Infrastructure Strategy, due for release in mid-2008, will go some way towards providing such a plan, although, as will be discussed below, it will be limited by its non-statutory basis.
In addition, while such a strategy is important for the identification of infrastructure priorities in the state, there needs to be effective leadership, governance and accountability arrangements in order for the strategy to be realised in a timely and efficient manner. Most organisations giving evidence in hearings indicated that there was no need for an additional agency to perform coordination work; rather, an approach leading to the better coordination of existing agencies was seen as desirable. To this end, the Committee investigated the role of the Office of the Coordinator General in Queensland, an office with the powers and responsibility to coordinate infrastructure provision on a similar scale to that proposed in the State Infrastructure Strategy. Alongside this, the Committee examined Queensland’s method of planning for infrastructure provision in its fastest growing area, namely the south-eastern region.
(b) Coordinator General
(i) General information
The Queensland Government established the Department of Infrastructure and Planning in January 2007. The new administrative arrangement brought together the planning, facilitation and coordination capabilities of the Office of the Coordinator General and the Office of Urban Management as well as capability to deliver critical infrastructure.515 Under the revised arrangement, the Director General of the Department of Infrastructure and Planning also holds the position of Coordinator General. This position is granted significant powers to manage major projects on a whole-of-government basis by the State Development and Public Works Organisation Act 1971 (Qld).516
515 Department of Infrastructure, South East Queensland Infrastructure Plan and Program 2007-2026, Queensland Government, p11. Available at: www.oum.qld.gov.au/Docs/SEQIPP/2007/05_Part_A_Context.pdf Accessed on 28 November 2007. 516 Department of Infrastructure, Annual Report 2006-07, Queensland Government, p4. Available at: www.infrastructure.qld.gov.au/library/pdf/publications/DIP_Annual_Report_web_full.pdf Accessed on 4 December 2007.
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In order to avoid possible or perceived conflict in the regulatory and decision-making aspects of the Coordinator General position, that is, between the Public Service Act517 requirement of the Director General and the statutory role of the Coordinator General, the planning and coordinating aspects can be separated at a departmental level if necessary. The Coordinator General is supported by a staff complement of 40 FTE at a cost of approximately $4 million per annum. Submissions can be made to Treasury for additional staff/consultants for individual projects. The total operating cost, including these additional resources, is about $10 million per annum.518
(ii) Legislation
The Coordinator General’s powers are provided for by the State Development and Public Works Organisation Act 1971 (Qld) (‘the Act’). The Coordinator General’s powers under this Act are wide-ranging, and are used primarily in relation to significant projects, prescribed developments, and critical infrastructure easements, as discussed below.
The role of Coordinator General originates in 1938 legislation, but the current Act dates from 1971. The role of the Coordinator General is defined by the Act as follows:
The Coordinator-General shall, of his or her own motion or at the direction of the Minister, undertake and commission such investigations, prepare such plans, devise such ways and means, give such directions, and take such steps and measures, as the Coordinator-General thinks necessary or desirable to secure the proper planning, preparation, execution, coordination, control and enforcement of a program of works, planned developments, and environmental coordination for the State and for areas over which the State claims jurisdiction.519
In 2006, additional powers were conferred under the Act. The changes relate chiefly to:
critical infrastructure easements, which may be declared by government in favour of the Coordinator General over an area of existing public utility easement;520 and
‘prescribed projects’, which may be declared for certain projects of significance by government, after which the Coordinator General can compel decisions by the relevant decision makers and/or assume the role of decision maker.521
517 This refers to the Public Service Act 1996 (Qld). 518 Mr Colin Jensen, Coordinator General and Director General, Queensland Department of Infrastructure and Planning, Briefing, 5 March 2008. 519 Section 10(2) State Development and Public Works Organisation Act 1971 (Qld). 520 State Development and Other Legislation Amendment Bill 2006 (Qld) - Explanatory notes for Amendments to be moved during consideration in detail by The Honourable Anna Bligh MP. Available at: http://203.19.232.150/Bills/52PDF/2006/StateDevOLAB06_AinCE.pdf Accessed on 23 April 2008. 521 State Development and Other Legislation Amendment Bill 2006 (Qld). Available at: www.legislation.qld.gov.au/Bills/52PDF/2005/StateDevOLAB06Exp.pdf Accessed on 23 April 2008.
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In the first instance, the Act as it relates to easements was amended in late 2006 to ensure that easements could be created to ‘fast-track critical projects’.522 These amendments were a response to the drought and the necessity for the state to provide a coordinated and urgent response to the water crisis.523 The Act was amended to allow for:
…the creation of a critical infrastructure easement in favour of the Coordinator-General over the area of an existing public utility easement. Such easements seek to utilise existing capacity within existing public utility easements as a means of mitigating the impact of the critical infrastructure projects on landowners in South-East Queensland and to allow the timely delivery of such projects.524
The powers and responsibilities of the Coordinator General in relation to prescribed projects are discussed further below, as well as the approval of significant projects, also prescribed by the Act. Other significant powers prescribed by the Act include the declaration of ‘prescribed developments’ and state development areas, both of which may have implications for major infrastructure projects.
Prescribed developments
In the first instance, where a resource (minerals/energy) development proposal is of major economic significance to the state, or where the provision of infrastructure for such a development is likely to place an excessive financial burden on the state, the Coordinator General may be directed to undertake an investigation into whether such a proposal should be declared a ‘prescribed development’ under the Act.525 On the basis of the Coordinator General’s investigation, the government may declare a ‘prescribed development’, in which case the Coordinator General is then responsible for preparing an infrastructure coordination plan in consultation with the state Treasury, ‘local bodies’ (which include statutory authorities, local government authorities, public corporations) and ‘such other bodies and persons as the Coordinator General thinks fit’.
The infrastructure coordination plan may contain such matters as the Coordinator General thinks appropriate but ‘may identify means for financing and coordinating the provision of infrastructure for the prescribed development’. Once the plan receives approval from the Minister and the Governor, it becomes binding on every party specified in the plan.526 Significantly, once a prescribed development has been declared, all applications pertaining to that development must go to the Coordinator General unless determined otherwise, as the local authority shall no longer
522 Department of Infrastructure and Planning, ‘State Development and Public Works Act 1971’, 2 October 2007. Available at: www.infrastructure.qld.gov.au/about/act.shtm Accessed on 17 March 2008. 523 Mr Colin Jensen, Coordinator General and Director General, Queensland Department of Infrastructure and Planning, Briefing, 5 March 2008. 524 State Development and Other Legislation Amendment Bill 2006 (Qld) - Explanatory notes for Amendments to be moved during consideration in detail by The Honourable Anna Bligh MP. Available at: http://203.19.232.150/Bills/52PDF/2006/StateDevOLAB06_AinCE.pdf Accessed on 23 April 2008. 525 Section 55, State Development and Public Works Organisation Act 1971 (Qld). 526 Ibid., Sections 57, 59 and 60.
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have jurisdiction.527 There is therefore a coordinated approach towards infrastructure provision and a single point of approvals.
State development areas
The Coordinator General also has the ability under the Act to declare an area a state development area. With respect to industry, these powers are used to ensure industrial development occurs in appropriate locations, such as Rockhampton, Gladstone, Townsville and Mt Isa. State development provisions cover any type of industry, including mining. This enables the state to identify land, put a boundary around it and control planning approvals. It also allows for the compulsory acquisition of land within the state development area, although this is a last resort. Land acquisition is attempted in the first instance on the open market, and it is rare for an agreement not to be reached. The Act can also be used to enable access for initial investigations to be undertaken to determine what land is needed. The power of the legislation is intended to ensure development occurs in accordance with best practice and in a particular location if necessary.528
Significant projects
Under the Act, the Coordinator General may declare a ‘significant project’, being a project of environmental, economic and social significance which may or may not require an Environmental Impact Statement (EIS). The decision to declare a significant project is based on the proposal meeting one or more of the following criteria:
Complex approval requirements, including local, State and Australian Government involvement.
A high level of investment in the state.
Potential effects on infrastructure and/or the environment.
Provision of substantial employment opportunities.
Strategic significance to a locality, region or the state.529
The process of approval for significant projects, with continuous input, if required, from the Coordinator General is as follows:
1. The project is declared significant;
527 Ibid., Sections 67 and 68. 528 Mr Michael Walsh, Deputy Director General Governance and Strategy, Queensland Department of Infrastructure and Planning, Briefing, 5 March 2008. 529 Queensland Department of Infrastructure and Planning, ‘Significant projects and environment impact statement process’, 24 March 2008. Available at: www.dip.qld.gov.au/processes-frameworks/significant-projects-and-environmental- impact-statement-process.htm Accessed on 23 April 2008.
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2. Draft terms of reference are drawn up for EIS, with input from the proponent;
3. Draft terms of reference are put out to public consultation, but there is no statutory period for this;
4. Final terms of reference are produced, which the proponent must comply with;
5. The proponent prepares EIS;
6. Coordinator General reviews EIS and tests against terms of reference;
7. There is a call for public submissions on the EIS; and
8. Coordinator General makes final decision.
A more detailed flow diagram of this process is reproduced at Appendix Seven.
At any point the Coordinator General can request specific information from proponents, to ensure that if a proponent finds a loophole in the terms of reference or other process, this can be obviated. The Coordinator General is able to utilise any relevant information in the decision-making process.
The Coordinator General does not undertake a standardised assessment process via a points system, and there is scope for the Coordinator General to reassess applications on a qualitative basis, even in the event that approvals have been given during other parts of the review process. For example, a significant project had been approved in 2002, but the proponent for various reasons was unable to proceed, and when the Coordinator General came to review the project, he saw that past policy meant that approval had been granted for vegetation offsets that would not have been given in the present climate. On this basis the proponent was required to meet the more recent, rigorous conditions, in spite of the previous status of the project.530
The Coordinator General is considered but decisive. Once proponents gather the necessary information required by the Coordinator General, it takes two or three months for a final decision to be made. The Committee was advised however, that the process of gathering the necessary information can be lengthy. The Premier, and Cabinet can overturn a decision of the Coordinator General, but this has not occurred to date. There is no judicial review of the process of decision- making undertaken by the Coordinator General.531
Declaring a ‘significant project’ provides greater certainty and clarity to proponents, but the environmental requirements are usually stringent, coupled with the fact that projects may also have to comply with federal legislation. The Traveston Dam report, for example, totalled 1,600
530 Mr Colin Jensen, Coordinator General and Director General, Queensland Department of Infrastructure and Planning, Briefing, 5 March 2008. 531 Ibid.
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pages.532 In addition, as mentioned above, the Coordinator General is able under the legislation, to impose any conditions deemed necessary on significant projects. However, it appears that the certainty provided to proponents outweighs the rigorousness of the assessment process.
It should be noted that conferring ‘significant project’ status does not mean that the project is endorsed by the Queensland Government. On occasions, a project is declared significant because there are concerns about it, and it is seen as desirable for the project to undergo a robust approvals process, which may not otherwise occur if the assessment were to take place under any other Act.533
Finding 25
There are clear advantages both for government and proponents in having the ability to identify significant projects, as provided for under the State Development and Public Works Organisation Act 1971 (Qld). Declaration of a significant project has the additional benefit of enabling the state government to ensure a rigorous approvals process for projects that may be controversial or have an extensive impact on the community.
Prescribed projects
A significant amendment to the Act in 2006 involved the insertion of a new part pertaining to the declaration of particular projects as ‘prescribed projects’. The rationale for the amendment was to ‘provide a scheme for certain projects of significance, declared by the Minister as prescribed projects, that will prevent unreasonable delays in the assessment and decision stage for necessary approvals, licenses, permits or other authorities’.534 A project may be declared a ‘prescribed project’ if the project:
comprises works that a local authority or the Coordinator General have been directed to undertake;
is in a state development area;
is an infrastructure facility;
has been declared a ‘significant project’; or
532 Sydney Morning Herald, ‘Report Clears Way for Traveston Dam’, 18 October 2007. Available at: www.smh.com.au/news/National/Report-clears-way-for-Traveston-Dam/2007/10/18/1192300940585.html Accessed on 14 March 2008. 533 Mr Michael Walsh, Deputy Director General Governance and Strategy, Queensland Department of Infrastructure and Planning, Briefing, 5 March 2008. 534 State Development and Other Legislation Amendment Bill 2006 (Qld). Available at: www.legislation.qld.gov.au/Bills/52PDF/2005/StateDevOLAB06Exp.pdf Accessed on 23 April 2008.
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is considered by the Minister to be environmentally, economically or socially significant to the state or region.535
In declaring a prescribed project, the Act requires the Minister to take into account the public interest in the region, whether a voluntary environmental agreement might be entered into in relation to the project, and any other relevant matters.
For prescribed projects, the powers under the Act enable the Coordinator General to facilitate the approvals process. The Coordinator General can set deadlines for other agencies to give approvals (by issuing a ‘notice to decide’).536 If an agency fails to provide a decision by a set date, the Coordinator General may, with the approval of the Minister, make a decision in lieu of the agency (‘step in’ power).537 The result for proponents is a more streamlined and certain process than previously existed.
While ODAC in Western Australia can assist with the coordination of approvals in relation to major resource proposals, there is no power to compel agencies to issue approvals. Similarly, while the WAPC may share some functions in common with the Coordinator General (for example, in relation to planning control areas), there is no comparison with the breadth of the Coordinator General’s powers in terms of coordinating and expediting approvals for major infrastructure projects.
Finding 26
The powerful legislation underpinning the role of the Coordinator General allows for a streamlined infrastructure approvals process for prescribed projects in a manner which does not occur in Western Australia. While certain functionalities of the Coordinator General are reflected in the roles of the Office of Development Approvals Coordination and the Western Australian Planning Commission in Western Australia, the important, legislatively supported coordinating function, with the power to compel approvals from state government agencies, does not exist.
Finding 27
An Office of the Coordinator General or equivalent in Western Australia would be likely to have significant benefits for the delivery of major infrastructure projects in this state and merits further investigation.
535 Section 76E(1), State Development and Public Works Organisation Act 1971 (Qld). 536 Ibid., Section 76J. 537 Ibid., Section 76K.
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Finding 28
As the role of the Coordinator General allows for wide-ranging powers with no review process, a careful and transparent recruitment process would be necessary, should such a position be adopted in Western Australia.
Finding 29
The risks of having one person in such a powerful role requires careful consideration, however the benefits appear to far outweigh these risks.
(c) SEQ Regional Plan and SEQ Infrastructure Plan
As well as the role of the Coordinator General, the Committee investigated the status and effectiveness of the South East Queensland Regional Plan 2005-2026 (‘SEQ Regional Plan’) and its companion document, the South East Queensland Infrastructure Plan and Program 2007-2026 (‘SEQ Infrastructure Plan’).
The Queensland Department of Infrastructure and Planning is responsible for developing, coordinating and monitoring the implementation of the SEQ Regional Plan, which the Department has described as follows:
Designed to manage growth in the region through to 2026, the SEQ Regional Plan is the first of its kind in Australia. It directs the future planning decisions of state and local government, and will shape the way in which SEQ grows over the next two decades.538
The SEQ Regional Plan was introduced in 2005 in response to population growth in the south eastern corner of the state, which presently accommodates 1,700 new arrivals a week. This influx has led to uncoordinated growth compounded by ad hoc approvals by local governments, a spreading urban footprint and a crisis in housing affordability. The plan defines urban areas in the region by setting an urban growth boundary which allows for twenty-five years of growth.539 It should be noted that certain significant regional ports and rail, as well as coal industry infrastructure are outside the region, and are therefore not covered by the SEQ Regional Plan.
The SEQ Regional Plan is a statutory planning instrument under the Integrated Planning Act 1997 (Qld) and as such, takes precedence over all other plans, policies and codes that have effect within the SEQ region, and must also be taken into account in planning and development decision-
538 Department of Infrastructure, Annual Report 2006-07, Queensland Government, p5. Available at: www.infrastructure.qld.gov.au/library/pdf/publications/DIP_Annual_Report_web_full.pdf Accessed on 4 December 2007. 539 Mr Lindsay Enright, Assistant Coordinator General, Queensland Department of Infrastructure and Planning, Briefing, 5 March 2008.
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making processes.540 The SEQ Regional Plan applies population projection and distribution data as well as housing and employment demand to determine growth management. The regional land use pattern is defined and a series of strategic directions are identified for the region. Furthermore, the SEQ Regional Plan comprises a series of principles and policies grouped into desired outcomes, which include sustainability, natural environment, infrastructure, urban development, and integrated transport.541 The Plan is to be reviewed every five years, with the first review scheduled to commence in late 2007 and conclude by 2010.542
The SEQ Regional Plan appears to share some similarities with the Metropolitan Region Scheme in Western Australia in so much as both are statutory instruments. The SEQ Regional Plan however, appears to have a greater strategic emphasis in terms of addressing growth management for example.
Complementing the SEQ Regional Plan is the SEQ Infrastructure Plan, which comprises the Queensland Government’s infrastructure priorities necessary to implement the SEQ Regional Plan. The Department of Infrastructure and Planning is also responsible for developing and coordinating the implementation of the SEQ Infrastructure Plan, which has been described as follows:
The SEQ Infrastructure Plan identifies the main infrastructure priorities for South East Queensland over the next 20 years. It details proposed investigations, planning, design and construction over the period in order to implement the SEQ Regional Plan. The SEQ Infrastructure Plan, first released in 2005, maps out all the road, rail, water, energy, health, education and community infrastructure necessary to support the SEQ Regional Plan.543
The SEQ Infrastructure Plan is updated each year. The annual updating process involves three major phases as follows:
Planning - From June to November each year, state government agencies responsible for infrastructure provision review their infrastructure priorities against the SEQ Regional Plan. Updated information from the Budget and from the SEQ Regional Plan as well as own-investigations and local government priorities may inform decisions about priorities for investment.
Review - In October/November each year, state government agencies review the progress of the SEQ Infrastructure Plan in terms of supporting the SEQ Regional Plan.
540 Office of Urban Management. Available at: www.oum.qld.gov.au/?id=29 Accessed on 28 November 2007. 541 Ibid. 542 Department of Infrastructure, Annual Report 2006-07, Queensland Government, p5. Available at: www.infrastructure.qld.gov.au/library/pdf/publications/DIP_Annual_Report_web_full.pdf Accessed on 4 December 2007. 543 Ibid.
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Budget - From December, the state government determines a consistent overall priority of future infrastructure investment within the context of the total state Budget. There is regular liaison between state and local government to ensure coordination between the two spheres.544
Planning can sometimes be impacted by unexpected events, for example, drought has led to an urgency regarding water infrastructure and it has been necessary to take into consideration a 15 per cent increase in construction costs.545
The Committee heard how the SEQ Infrastructure Plan provides negotiating power for proponents. For example, if proponents wish to bring forward an aspect of a development, the state can require an agreement relating to this aspect, however it then falls on the proponent to provide supporting infrastructure.546
In Queensland, state government funding for infrastructure is sourced primarily from cash flows, borrowings and alignment of the government’s capital portfolio. While borrowings have increased over time, the state retains a net debt to revenue ratio within the limits necessary to retain the state’s AAA credit rating.547 Where appropriate, options for the funding and delivery of projects in the SEQ Infrastructure Plan are evaluated through the Queensland government’s Value for Money Framework. The Framework applies to all infrastructure projects above $100 million over the life of the asset, and establishes a set of procedures for evaluating infrastructure delivery options in terms of project outputs, whole of life costing, and the correct identification and allocation of risks. In so doing, the Framework can be used to identify the best value for money outcome for the government and the community, be this PPP or otherwise.548
The strength of the Queensland model is that infrastructure prioritisation and funding (via the SEQ Infrastructure Plan) is closely linked with the SEQ Regional Plan so there is a comprehensive framework in place for planning and implementing key economic and social infrastructure across the region over time. The process for prioritisation of projects also enables the contribution of all government agencies. Together, the two plans identify the strategic directions for the region, areas where growth should occur and priority infrastructure, and link all of this into the budget program of government.
The SEQ Regional Plan is one of the most powerful statutory plans in the country, ensuring that interrelated infrastructure is constructed appropriately; its linked Infrastructure Plan is a budgeted
544 Department of Infrastructure, South East Queensland Infrastructure Plan and Program 2007-2026, Queensland Government, p10. Available at: www.oum.qld.gov.au/Docs/SEQIPP/2007/05_Part_A_Context.pdf Accessed on 4 December 2007. 545 Mr Lindsay Enright, Assistant Coordinator General, Queensland Department of Infrastructure and Planning, Briefing, 5 March 2008. 546 Ibid. 547 Mr Tim Spencer, Deputy Under Treasurer, Queensland Treasury, Briefing, 5 March 2008. 548 Department of Infrastructure, South East Queensland Infrastructure Plan and Program 2007-2026, Queensland Government, p10. Available at: www.oum.qld.gov.au/Docs/SEQIPP/2007/05_Part_A_Context.pdf Accessed on 4 December 2007.
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document. As a statutory document, the SEQ Regional Plan can only be changed by Parliament, but the SEQ Infrastructure Plan belongs to the government of the day. Because of the significance of the plans, responsibility lies with a senior Minister. At present in Queensland, there is bipartisan support for the plans.549
Finding 30
The effectiveness of the Queensland model for infrastructure provision is largely the result of the status and interaction of the SEQ Regional Plan and SEQ Infrastructure Plan.
The Committee recognises that Queensland is not the only jurisdiction to operate using this system. New South Wales (NSW) also established an Office of the Coordinator General in April 2007, which aims to ‘ensure alignment between planning, investment and delivery for strategic public and private projects through a coordinated, whole-of-Government focus’.550 A cursory examination indicates that in NSW, the State Infrastructure Strategy is a rolling plan which uses strategic planning information to identify infrastructure priorities and in turn, inform the budget process. According to the NSW Treasury: The State Infrastructure Strategy links the four year capital Budget contained in the Infrastructure Statement (Budget Paper No. 4) with the 25 year long term planning strategies, like the Metropolitan Strategy. The State Infrastructure Strategy covers the State’s expenditure on capital assets over the next decade and sets out the strategy to manage public investment growth in line with funding sources.551 The NSW approach does not appear to have the same degree of integration of infrastructure prioritisation and funding as Queensland, nor the same level of statutory backing. For the purposes of this report however, the Committee has limited its focus to the Queensland model on the basis of feedback received during the Inquiry. As such, Queensland is the only jurisdiction that has been subject to detailed review and the Committee has therefore refrained from entering into a comparative analysis.
(d) Applicability of the Queensland model to Western Australia
There are indications that Western Australia’s soon to be released State Infrastructure Strategy may reflect certain aspects of the SEQ plans. The SIS is intended to detail ‘the indicative timing and location, and possibly cost and potential source of funding, of specific projects’ over a 20 year period.552 The Strategy is intended to identify public and private sector infrastructure priorities
549 Mr Lindsay Enright, Assistant Coordinator General, Queensland Department of Infrastructure and Planning, Briefing, 5 March 2008. 550 New South Wales Government, ‘Office of the Coordinator General’, nd. Available at: www.nsw.gov.au/Coordinator_General.asp Accessed on 24 April 2008. 551 New South Wales Government, The Treasury, ‘State Infrastructure Strategy’, 12 December 2007. Available at: www.treasury.nsw.gov.au/wwg/state_infrastructure_strategy_sis Accessed on 24 April 2008. 552 Government of Western Australia, Framework for the State Infrastructure Strategy Green Paper, September 2006, p5.
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over the course of the 20 year timeframe. In terms of the state government’s infrastructure priorities, this will be broken down into: a capital works program over the forward estimates period; an indicative program up to year 10; and government intentions from year 11 to year 20, whereby timing and funding estimates become more generalised over time.553 Projects will be identified and prioritised on the basis of significance as measured against economic development, social welfare, environmental and financial criteria.554
Until the SIS is released in mid-2008, it cannot be determined how effective a mechanism it will be. On face value, the SIS appears to represent a greater link between strategic objectives and infrastructure prioritisation, which in turn may be used to inform budget processes. The SIS lacks statutory backing however, and indications are that it will not benefit from the same degree of integration between the identification and implementation of infrastructure projects as the Queensland scenario.
Finding 31
Indications are that the Western Australian State Infrastructure Strategy will resemble aspects of the SEQ Regional and Infrastructure Plans. However, the State Infrastructure Strategy will not have the power of a statutory document.
DPI reflected on the benefits of the Queensland model, in particular the merits of a coordinated and timely approach to the assessment of major development proposals. DPI commented in particular on the ability of the Queensland model to accommodate ‘triple bottom line’ assessments, that is, the coordinated assessment of the environmental, social and economic impacts of a proposal. This process is constrained in Western Australia by legislative arrangements and the responsibility that different agencies have for different parts of the process: At the moment, for many of our major resource proposals the decision making on whether they should proceed largely sits with [the Departments of] Environment, and Industry and Resources, whereas in other places, for major development proposals like that there is a clear triple bottom line assessment that is coordinated through the planning system. Therefore, environmental considerations are an input, social considerations are an input, economic considerations are an input…Although we are conscious that, certainly, DOIR and DEC try to ensure a holistic assessment, the mechanisms do not really allow that to be done as well as in the east.555
DPI advised that work is currently underway to develop a closer link between statutory planning processes and government infrastructure planning and delivery, along the same principles as the SEQ plans:
553 Ibid., p12. 554 Ibid., p23. 555 Ms Dorte Ekelund, Deputy Director General, Department for Planning and Infrastructure, Transcript of Evidence, 12 March 2008, pp7-8.
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Essentially, the urban development program seeks to … have an implementation plan that aligns with the planning framework, and also inside that implementation plan is a staging plan for where the government believes urban development should occur as a priority, but also the infrastructure that needs to be rolled out to support that urban development and the associated time lines.556
DPI commenced the Urban Development Program (UDP) in part due to deficiencies recognised in the existing Metropolitan Development Program. The Metropolitan Development Program 2005/06 - 2009/10 (MDP) ‘maps the future provision of residential land and housing to help ensure a good supply of serviced land is available’.557 An evaluation found however, that the MDP was not a fully effective infrastructure planning tool. In April 2007, the WAPC resolved to ‘enlist the support and commitment of Treasury to strengthen the relevance of the MDP as a whole-of-government land release strategy and infrastructure program connected into [the] Budget process’.558 Part of the DPI review currently underway into the MDP involves developing the UDP concept, researching best practice in other Australian jurisdictions, and developing and testing a methodology via case studies.559 The strategic objectives of the UDP have been described as follows:
An integrated whole-of-government land and development strategy to monitor and manage growth;
The State Government’s 20 year land and development strategy to provide the basis for infrastructure prioritisation and inform State budget process;
A staging plan to implement strategic regional planning based on social, economic and environmental sustainability principles;
A mechanism to identify and secure key sites and corridors needed for infrastructure to support future investment and development.560
It is intended that the UDP will provide an overall plan of growth areas and identify growth constraints, opportunities and timing. Other key outputs will include a 20 year infrastructure strategy, and a rolling program of three to five year priority commitments.561 DPI advised that a case study of sorts is underway in the south west metropolitan and Peel regions where a
556 Ibid., p11. 557 Western Australian Planning Commission, ‘Metropolitan Development Program 2005/2006 to 2009/2010’, nd. Available at: www.wapc.wa.gov.au/Publications/777.aspx Accessed on 28 April 2008. 558 Ms Dorte Ekelund, Deputy Director General; Mr Martin Richardson, Executive Director Urban Policy; Mr John Fischer, Executive Director Transport Industry Policy, Department for Planning and Infrastructure, Transcript of Evidence, 12 March 2009 - supplementary information provided at hearing. 559 Ibid. 560 Ibid. 561 Ibid.
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subregional plan is under development. This includes infrastructure requirements to support the growth plan, and adopts a similar type of model to that in south east Queensland.562
DPI considers that the planning process and tools already exist in Western Australia ‘in terms of a robust planning system with good centralised control’.563 DPI has summarised its position as follows:
SE Queensland model provides useful guidance; we have similar mechanisms, but less centralised priority setting and weaker links between development priorities and infrastructure delivery;
Intent is to develop a business case for adoption of a program across the regions that integrates land use and infrastructure priorities;
There is a need for strong Treasury ownership and coordination of development priorities.564
With respect to the last point, the importance of political support to the success of implementing a system modelled on Queensland is discussed further below.
The Committee commends DPI for undertaking development of the UDP as this will reinforce the link between development priorities and infrastructure delivery. The Committee is of the opinion however, that rather than simply informing the budget process, there needs to be a more meaningful interaction between the setting of infrastructure priorities and the commitment of funding. The release of the State Infrastructure Strategy represents a timely opportunity to examine mechanisms for better linking infrastructure prioritisation to delivery, as occurs in south east Queensland.
Finding 32
The release of the State Infrastructure Strategy represents a timely opportunity to examine mechanisms for better linking infrastructure prioritisation to delivery, as occurs in south east Queensland.
562 Mr Martin Richardson, Executive Director Urban Policy, Department for Planning and Infrastructure, Transcript of Evidence, 12 March 2008, p11. 563 Ibid. 564 Ms Dorte Ekelund, Deputy Director General; Mr Martin Richardson, Executive Director Urban Policy; Mr John Fischer, Executive Director Transport Industry Policy, Department for Planning and Infrastructure, Transcript of Evidence, 12 March 2009 - supplementary information provided at hearing.
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Recommendation 5
That the Western Australian Government investigate the potential for an infrastructure identification and prioritisation strategy, preferably with statutory backing, which is supported by an infrastructure delivery and funding plan.
DPI indicated that another benefit of the Queensland model is the Coordinator General’s ability to compel approvals from the relevant decision making authorities. While some of the coordination and facilitation aspects of the Coordinator General’s role are reflected in ODAC in Western Australia, ODAC simply lacks any comparable power:
Can I just mention you have the ODAC process in Western Australia; that is, the Office of Development Approvals Coordination, which really goes through the first part of that; proponents submitting projects, which really have some significance to the state and then they are coordinated through the ODAC committee. However, all that does is to facilitate the approval process; it does not have that overriding decision-making process.565
A particular strength of the Queensland model is that responsibility for infrastructure is coordinated by a single entity (the Department of Infrastructure and Planning) and reinforced by the considerable powers of the Coordinator General. Added weight and authority is attached to the Department and its directives by way of its status as one of the ‘central’ agencies of the Queensland Government (along with Treasury and the Department of the Premier and Cabinet), and its oversight by a senior Minister. Over time, strong working relationships have also developed at senior management level between the three agencies. These relationships, although informal, have also contributed to the success of the Queensland model.566 DPI also highlighted that similar political support would be critical to the success of any comparable model applied in Western Australia: That sort of process that they have in Queensland has significant political and community support. I think getting that is going to be critical to the success. Otherwise, there are going to be people saying, “Well, what are we going in that direction for? There’s another land developer going in that direction. Why shouldn’t we be supporting him instead?” That is going to be the challenge.567
The standing of the Coordinator General and Department of Infrastructure within the Queensland Government appears to have an important bearing on its authority. It is telling that the New South Wales Office of the Coordinator General is similarly afforded a high level of authority from its
565 Mr John Fischer, Executive Director Transport Industry Policy, Department for Planning and Infrastructure, Transcript of Evidence, 12 March 2008, p9. 566 Mr Michael Walsh, Deputy Director General Governance and Strategy, Queensland Department of Infrastructure and Planning, Briefing, 5 March 2008. 567 Ms Dorte Ekelund, Deputy Director General, Department for Planning and Infrastructure, Transcript of Evidence, 12 March 2008, p11.
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location within the Department of Premier and Cabinet.568 The Committee also heard from BHP Billiton regarding the need for a central body in government with the power to influence other agencies: …We do very much endorse the need to grow from beyond the facilitation role of a government agency to someone who has genuine authoritative project management accountability within—particularly because of the extraordinary work load in the state— DPC or the Premier’s office. That someone must be a real doer who can actually get schedules committed to and implemented.569
Recommendation 6
That the Western Australian Government investigate the establishment of an Office of the Coordinator General to enable a coordinated approach to infrastructure planning/ common decision-making framework for both state and local government.
Recommendation 7
That the Western Australian Government investigate establishing an Office of the Coordinator General within the Department of the Premier and Cabinet and/or confers sufficient powers to enable the position to compel actions from relevant decision making authorities.
(e) Dedicated state infrastructure fund
A dedicated state infrastructure fund was suggested by some agencies as a means of obviating the long time delays associated with infrastructure projects. However, there were different views on the scope, composition and use for such a fund.
WAPC suggested that a dedicated fund, modelled on the Metropolitan Region Improvement Fund, linked to regional planning schemes and administered by the WAPC, would provide for the long- term planning of regional areas. WAPC stated that:
… the best use of [a regional planning scheme] is to have a transparent statutory mechanism for identifying locations of corridors and routes, and to have a dedicated fund - whatever the revenue source; it does not have to be land tax; there can be a state
568 New South Wales Government, ‘Office of the Coordinator General’, nd. Available at: www.nsw.gov.au/Coordinator_General.asp Accessed on 24 April 2008. 569 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Transcript of Evidence, 2 April 2008, p9.
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improvement fund and it can be contributed to in a variety of ways. It would be nice to think there were a few more royalties or something like that that could go into it.570
According to the WAPC, a dedicated fund linked to a statutory planning scheme would represent an efficient way of expending public money, based on the cost savings and planning benefits already achieved by the Metropolitan Region Scheme, and provide certainty for the regional authorities. As stated above, the WAPC was not concerned about where the funding should originate, only that a dedicated revenue source should be available to enable effective planning to occur.571 While this would not remove the necessity for other funding to be available to meet short-term or unforseen requirements, it would conceivably have prevented some of the infrastructure bottlenecks in the north west of the state.
In contrast, DoIR’s submission and evidence focused on the establishment of an ‘Industry Infrastructure Development Fund (IIDF)’ to address the unpredictability of project establishment in the resources sector, and the subsequent need to be able to respond quickly to infrastructure requirements in the event that a project comes ‘on stream’ ahead of time, or merely exceeds its intended scope, as in the case of the Ravensthorpe Nickel Project:
In developing resource or resource processing projects, a firm usually establishes long- term contracts with their overseas buyers, and missed market opportunities do not arise again soon, hence delays in approvals or commitments to infrastructure for any such worthwhile sustainable project should, wherever possible, be avoided.
As illustrated in Section 3.1 of this submission, because of the State’s export focus, it is unavoidable that the State’s infrastructure planning will (always) continue to operate in an environment with some volatility. In addition to seeking to attain a better financial deal from the Commonwealth Government (again refer Section 3.4 of this submission), DoIR believes that the State Government should establish a IIDF. This will allow the State to fund its share of any required public monies needed to support a worthwhile resource development proposal and/or its share of expenditures required for key common user infrastructure.
Establishment of a IIDF also complements and further strengthens the case made by the State Government for the Commonwealth Government to establish a $2 billion Federal Infrastructure Fund. The purpose of the Federal Fund, if established, would be the financing of common user based infrastructure that supports the Nation’s export effort.572
There are several options available for placing monies into a IIDF, which includes i.) sequestration of Port dividends into the Fund, or ii.) placing a fixed percentage of the State’s mineral and petroleum royalties into the Fund, or iii.) establishing a uncommitted contingency reservation within the State Budget. The IIDF is essentially a ‘contingency plan’ to fund (previously unplanned or the need to bring forward) key infrastructure. If
570 Mr Jeremy Dawkins, Chairman, Western Australian Planning Commission, Transcript of Evidence, 15 October 2007, p8. 571 Ibid. 572 Hon. Eric Ripper, MLA, Media Statements “Ripper calls for $2 billion national export infrastructure fund”, 2 January 2007 and “Ripper invites Costello to witness WA’s infrastructure needs first hand” , 3 January 2007.
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those contingency monies are not required, then Government will be able to spend them as they see fit in due course.
The IIDF concept limits the potential crowding-out effects arising to Government from addressing rapidly changing Government expenditure priorities caused through, for example, a worthwhile project requiring some government commitments coming on stream much earlier than previously anticipated. The Fund concept also works well for limiting potential crowding out effects on government expenditures from a (largely) unknown project being suddenly committed for development.573
In its hearing before the Committee, DoIR explained that such a fund would assist the state government through better fiscal management:
There has been a lot of dialogue between ourselves and Treasury on the infrastructure fund. Our principal concern was to have a mechanism whereby the unpredictability and the lumpiness of industrial infrastructure did not dislocate government expenditure priorities, as it had a tendency to do, because it would emerge from nowhere and everybody would start running around saying, “How do we cater for this $200 million lump sum that we need for water supply in the Burrup Peninsula?” We felt it was better to treat that emerging need in the same way that the private sector would insure for it. So you create a fund and provide some initial support for it but we did not look at the mechanism in detail.574
The Regional Development Council also advocated a fund - either a dedicated or a general fund - to assist with the building of vital infrastructure to support resource projects. The RDC held up international examples of future funds to support the establishment of such a fund in Western Australia:
Dedicated infrastructure funds have become more widespread over the last decade as developed economies with ageing facilities address the need to modernise strategic infrastructure.
Canada’s Strategic Infrastructure Fund is a good example of such a scheme, and how it might be administered and coordinated through a holistic administrative approach. If the Western Australian Government was willing to hypothecate part of the State’s royalty payments from mineral operations, this could be a possible contender.
Future Funds
Alternatively, rather than fund dedicated solely to infrastructure, the Government could establish a Future Fund whose investment mandate could include the funding of strategic infrastructure under soft loan arrangement or provide funding out of interest and dividend income.
573 Submission No. 10 from Department of Industry and Resources, 23 April 2007, pp11-12. 574 Mr Peter Kiossev, General Manager, Infrastructure Policy, Department of Industry and Resources, Transcript of Evidence, 21 November 2007, pp6-7.
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Indeed, the Australian Government has already set aside $18 billion in the Future Fund to be invested in financial assets by the (Future Fund) Board of Guardians to help to meet the Government’s unfunded superannuation liabilities.
There are not yet any global examples of ‘Future Fund’ based models used solely for infrastructure development purposes. Specific government investment in ‘low risk’ infrastructure projects could offer a good long-term rate of return and acceptable security.
The Norwegian Government Pension Fund is a good example of a future fund model, which could be readily adapted to funding infrastructure projects. In this particular case, while all investment by the fund is directed overseas, a fixed proportion of 4 per cent of returns is directed towards the Federal budget, unspecified.
The Alaska Permanent Fund is another example of a future fund. Owned by the State of Alaska, the fund was established almost thirty years ago as the construction of the Alaska pipeline neared completion …Some 25 per cent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the State of Alaska have to be placed into the fund, the principal of which may only be used for income-producing investments.
The fund is fully invested in the … domestic and international financial markets, diversified among a variety of asset classes. It generates income from these investments. The legislature may spend realised fund investment earnings. Realised earnings consist of stock dividends, bond interest, real estate rent and the income made or lost by the sale of any of these investment assets.
In Western Australia, budget surpluses and mining royalties could potentially seed a future fund in a similar way to Norway and Alaska, and a portion of the returns could be allocated specifically to infrastructure. The [State Infrastructure Strategy] Green Paper canvasses the idea of an infrastructure development fund, financed by allocating a share of mining royalty receipts. The paper concludes that specific allocation from the existing Consolidated Fund is a better approach.
The Great Southern Development Commission (GSDC), in its submission to the Green Paper, suggested the application of this type of model to fund the infrastructure needs of government trading enterprises such as ports. The idea put forward by GSDC is that a portion of the dividends paid by government trading enterprises is pooled to seed a State Infrastructure Development Fund. This could be combined with mining and other royalties in much the same way the Norwegians have done.575
The Department of Treasury and Finance, however, does not support the hypothecation of revenues for the purposes of building infrastructure. DTF presented a clear position on the use of funds in its statement from the Green Paper on the State Infrastructure Strategy:
A fund could be financed by allocating a share of mining royalty receipts to the fund (ie hypothecating part of the Government’s revenue streams to a specific purpose) or by appropriations from the Consolidated Fund. Hypothecation of revenues is undesirable
575 Submission No. 1 from Regional Development Council, 30 March 2007, pp60-61.
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from the perspective of good fiscal management in the public sector, as it reduces the flexibility of the Government to respond to changes in its environment and narrows the revenue base for other expenditures (which may provide more benefits than economic infrastructure). It also gives these projects a privileged position in a State budget context by removing them from the scrutiny of the annual budget process, potentially distorting priorities and misallocating public sector resources. In addition, it may create an expectation that the funds should be spent, even if there is a lack of suitable infrastructure projects.
Appropriation from the Consolidated Fund is considered a superior approach as it is:
transparent (funds are identified clearly in budget papers);
bounded instead of open-ended (as would be the case with a percentage share of royalty receipts); and
able to be reviewed when necessary.576
The Committee accepts DTF’s view about transparency, but is concerned that there should be funding readily available for infrastructure projects requiring a fast turnaround, in the same way that is available for agencies such as the Department of Health and the Department of Education.577 The Committee is also persuaded of the effectiveness of the MRIT and MRS in the planning of Perth’s economic infrastructure, in particular its transport routes, and feels that consideration should be given to applying a similar scheme to regional areas. The Committee understands the position of DTF on hypothecated taxes, but feels that in specific instances, such as the MRIT, its cost effectiveness has been demonstrated.
The Port Hedland Port Authority (PHPA) suggested that a sinking fund could potentially increase the productiveness of ports or minimise the negative impact on operations when unbudgeted items arise. Because of the legal position of the port, which is owned by the state but is expected to operate on a commercial basis, the PHPA, like other ports, is constrained from spending its own funds. In order for the PHPA to expend capital funds it must apply through the Minister for Planning and Infrastructure, and Treasury, which means that it must factor in extra time on any project. A dedicated, quick turnaround fund however, would enable ports to undertake expansions or build related infrastructure that would create more revenue for the port, and/or save money (for example, by purchasing workers’ accommodation when the rental alternative is more costly).578 Such a fund could be compared to the Canadian Government’s Gateways and Border Crossing Fund (see Chapter 5.2(b)(i) above).
576 Department of Treasury and Finance, Framework for the State Infrastructure Strategy: Green Paper, September 2006, p45. Available at: www.dtf.wa.gov.au/cms/tre_content.asp?ID=1397 Accessed on 14 February 2008. 577 Mr Athol Jamieson, Assistant Director General Operations, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p6. 578 Ms Daphne Gollogly, Manager Finance and Administration, Port Hedland Port Authority, Briefing, 10 March 2008.
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In addition, the new federal government stated that it would ‘establish a Western Australian Infrastructure Fund to invest in State infrastructure projects over the next 20 years.’579 The fund will comprise ‘25 per cent of the Commonwealth Petroleum Resource Rent Tax revenue from the Gorgon Gas Development’, which could amount to ‘up to $100 million’ annually.580 Prime Minister Kevin Rudd, during his election campaign, also indicated that if Gorgon fails to deliver within the expected timeframe, a similar arrangement would be made with the Pluto project.581 The Committee accepts DoIR’s argument that the establishment of an infrastructure fund would make similar contributions from the federal government more attractive.
Recommendation 8
That the Western Australian Government consider either a series of sinking funds or quick- turnaround mechanisms for defined infrastructure needs, such as those arising from port expansions or new significant resource projects which have resulted in unanticipated pressures on local communities.
5.4 Assisting local governments
According to WALGA, local government is responsible for almost $13 billion worth of infrastructure but existing funding mechanisms do not adequately reflect the contribution local government plays in supporting the economic development of the state. Local government is a key provider of infrastructure in Western Australia including urban and rural water supply, sanitation, local roads, and community infrastructure (e.g. swimming pools, libraries), and also has significant responsibility for the long-term maintenance of infrastructure developed by other bodies. Examples cited include roads in new subdivisions built by private developers and airport infrastructure provided by the federal government. WALGA also states that local governments in rural and remote areas often assume even greater responsibility for infrastructure due to the centralisation of state and federal services.582
As mentioned briefly in Chapter 3, local governments in growth areas in particular are coming under increasing strain. Between June 2001 and June 2006, the Pilbara region was the fastest growing statistical division in the state, recording an annual population growth of 2.4 per cent. In
579 Hon. Anthony Albanese, MP, Securing Australia’s Long Term Prosperity: Western Australian Infrastructure Fund, Media Statement, Australian Labor Party, Canberra, 22 October 2007, Available at: www.alp.org.au/media/1007/msiwat220.php Accessed on 18 January 2008. 580 Ibid. 581 Hon. Kevin Rudd, MP, Securing WA’s Infrastructure Fund, Media Statement, 2 August 2007. Available at: www.kevin07.com.au/news/investing-in-australia-s-future/securing-was-infrastructure-fund.html Accessed on 29 November 2007. 582 Submission No. 8 from Western Australian Local Government Association, 19 April 2007, pp 2-4.
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the same period, the Shire of Roebourne recorded the largest population growth in the Pilbara.583 Coupled with ageing infrastructure, this rate of growth is putting increasing pressure on Shire resources. The Shire of Roebourne estimated that it would cost approximately $25 million to $30 million to fund the soft infrastructure necessary to support the existing resident population. Additional population growth, including the prospect of a new town being established at Cape Preston will have even greater implications for the Shire.584 585
Similarly, the Shire of Ravensthorpe has seen rapid growth due to the resident workforce associated with the Ravensthorpe Nickel Project. The Shire’s estimated resident population increased from 1,504 in June 2001 to 2,029 in June 2006586, representing a 35 per cent increase in five years. The problems relating to the provision of wastewater and power infrastructure, and associated delays in the development of commercial and industrial land in Hopetoun have already been reviewed in Chapter 3.1, however community infrastructure is also an issue. In a situation akin to the Pilbara, the Shire of Ravensthorpe highlighted the inadequacy of community infrastructure in light of rapid growth:
The growing population of the Shire has placed a great demand on the upgrading of existing and supply of additional community infrastructure in the Shire. Prior to the advent of the Ravensthorpe Nickel Project, community infrastructure levels were comparable to other farming towns in the region. However, the sudden increase in population, as well as the demographic of this increase has led to a need for considerable increases in community infrastructure.
Of particular note is the provision of child care, youth services, education and recreation.587
These two examples highlight the burden on local governments in regional areas when confronted with rapid project-related population growth, particularly in relation to the provision of soft infrastructure. The pressure on local governments to fund infrastructure is further compounded by confusion over funding responsibility and estimates that inadequately reflect the whole life costs of infrastructure. According to the Peel Development Commission, the funding responsibilities for infrastructure projects across all levels of government need clarification, including the ongoing implications for local government arising from a project. Long-term infrastructure operating and
583 Australian Bureau of Statistics, ‘Regional Population Growth in Australia 1996 to 2006’, CAT 3218.0, 24 July 2007. Available at: www.abs.gov.au Accessed on 23 January 2008. 584 Mr Allan Moles, Chief Executive Officer, Shire of Roebourne, Briefing, 30 July 2007. 585 In 2002, a State Agreement (Iron Ore Processing (Mineralogy Pty Ltd) Agreement) was signed enabling the mining and processing of iron ore near Cape Preston, 80km south of Karratha. The State Agreement creates potential for a new town to be built to accommodate the workforce and/or dependents, which would have servicing and infrastructure maintenance implications for the Shire. A construction workforce of 2,000-5,000 is anticipated and the new town could potentially be larger than Dampier (advised by Mr Allan Moles, Chief Executive Officer, Shire of Roebourne, Briefing, 30 July 2007). 586 Australian Bureau of Statistics, ‘Regional Population Growth in Australia 1996 to 2006’, CAT 3218.0, 24 July 2007. Available at: www.abs.gov.au Accessed on 23 January 2008. 587 Submission No. 20 from Shire of Ravensthorpe, 2 August 2007, p15.
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maintenance costs need to be factored into projects as local governments are often burdened with these costs or are subject to additional funding applications.588
(a) Improving the efficiency of infrastructure funding processes
(i) State Infrastructure Strategy
The State Infrastructure Strategy may address some of the above issues by providing a clearer long-term plan of major infrastructure projects. One of the objectives of the SIS is ‘to provide an infrastructure agenda that will facilitate engagement of the Commonwealth and local governments to meet their share of responsibility for infrastructure provision’. With respect to the issue of cost shifting to local governments, the Framework for the State Infrastructure Strategy acknowledges the Intergovernmental Agreement signed in April 2006 by the commonwealth, and state and territory governments, and the Australian Local Government Association.589 The Intergovernmental Agreement represents an in-principle agreement from governments ‘that when a responsibility is devolved to local government, local government is consulted and the financial and other impacts on local government are taken into account’.590
Reinforcing the importance of local government inclusion, DoIR advised that greater consultation is occurring with local governments at the initial stage of projects:
We have been aware for some time that local authorities have been concerned about the impact of resource projects in their vicinity and the implications for social infrastructure and of meeting some of those demand pressures that emerge. A couple of years ago we gave a lot of thought to involving the local authorities in the scoping process that is now managed by the Office of Development Approvals Coordination. Now, as part of that process, when it calls the agencies together to scope a particular development, that process should involve bringing in all the stakeholders, including the local authority, so that it has a voice in government to identify the social and economic infrastructure required within the local authority area. Government can then factor that into its infrastructure planning for that project.591
(ii) The Queensland model - LG Infrastructure Services
The Committee met with representatives of LG Infrastructure Services during its visit to Brisbane in March 2008. LG Infrastructure Services is dedicated to assisting local governments in Queensland with infrastructure related matters and is unique in Australia having been modelled on
588 Submission No. 14 from Peel Development Commission, 27 April 2007, pp 4-5. 589 Government of Western Australia, Framework for the State Infrastructure Strategy Green Paper, Government of Western Australia, Perth, September 2006, pp 11, 62. 590 Local Government and Planning Ministers’ Council, ‘Special Meeting Canberra’, 12 April 2006. Available at: www.lgpmcouncil.gov.au/communique/20060412.aspx Accessed on 24 January 2008. 591 Mr Peter Kiossev, General Manager, Infrastructure Policy, Department of Industry and Resources, Transcript of Evidence, 21 November 2007, p4.
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a similar organisation in the United Kingdom. The Committee was particularly interested to hear about its role and activities to date.
LG Infrastructure Services is a joint initiative of the Local Government Association of Queensland and the Queensland Treasury Corporation. As a private company, it is owned in equal shares by both agencies and has the status of a state authority. Furthermore, as a separate legal entity, LG Infrastructure Services transacts business with local governments on an independent basis.
The objective of LG Infrastructure Services is to assist local government to achieve ‘the best value for money in its infrastructure provision’. Since its establishment in 2005, LG Infrastructure Services has assisted local governments with infrastructure projects to the value of over $3 billion. Local governments retain control over project delivery with LG Infrastructure Services describing its role as one of ‘assisting and facilitating local governments in infrastructure provision without taking control of the process’. Assistance can relate to any stage of a project’s life cycle, from preliminary assessment and business case development, to project commissioning and project monitoring and review. Services offered include reviewing infrastructure plans and strategies, assisting in negotiations with state government departments, undertaking risk assessments, and providing independent advice.592
With a core staff complement of 25, staff may also be seconded from either agency to meet staffing requirements on a needs and projects basis. In terms of meeting operating costs, LG Infrastructure Services advised that on establishment the state government provided a loan of $250,000 per year over three years with a requirement for the loan to be repaid. To date LG Infrastructure Services has not drawn on the loan for the second year. LG Infrastructure Services operates on a fee for service basis and while a standard rate applies, there is some flexibility with this based on an individual local government’s capacity to pay, the nature of the project and the extent to which risk is taken on for the project. LG Infrastructure Services has more recently started moving towards a percentage on projects as this represents a more secure form of income. In any case, fees are based purely on cost recovery and are not intended to provide revenue to the government. Increased returns will be invested in new products and services following a model that Queensland Treasury Corporation has established, whereby as the scale of business increases, the scope of services is expanded.593
Evidence of the success of LG Infrastructure Services is reflected in the value of savings that have been achieved. According to LG Infrastructure Services, the value of savings based on the procurement advice given to local governments, amounts to $500 million. Considering that its annual turnover is around $3 million per annum, every million dollars invested in LG Infrastructure Services equates to over $100 million in savings.594
592 All information is sourced from the website of LG Infrastructure Services. Available at: www.lgis.com.au/index.shtml Accessed on 19 February 2008. 593 Mr Mark Girard, Chief Executive, and Mr David Jay, Chair, LG Infrastructure Services, Briefing, 5 March 2008. 594 Ibid.
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Committee Analysis
Some important lessons that the Committee took from its meeting with LG Infrastructure Services are as follows:
The situation that led to the establishment of LG Infrastructure Services in Queensland has parallels with Western Australia. According to LG Infrastructure Services, many local governments in Queensland no longer have access to well-resourced engineers and other professionals and so engage consultants on an ad hoc basis. Consultants however, can be limited in the approach they take to local government infrastructure and tend to consider infrastructure projects on face value. LG Infrastructure Services likes to take a broader view and adds value to the process by: considering the service the local government wants; whether it is affordable; and whether the infrastructure being sought actually provides the right service.
According to LG Infrastructure Services, in the last 10 years the cost of providing services has grown at a faster rate than councils’ ability to service those costs through rate increases and other forms of income generation. LG Infrastructure Services was formed in recognition of the risk to local governments associated with the cost of providing services, particularly in rural and remote Queensland. LG Infrastructure Services is able to provide economies of scale and a hypothetical example was cited whereby 100 councils might require new sewage treatment plants. In this situation, LG Infrastructure Services can contract a single design so that each plant can be constructed on a similar platform or else all plants can be procured at once. This is both an effective and efficient process for procuring such infrastructure.
Regional collaborations are very important to the operations of LG Infrastructure Services and are where the organisation sees it can add real value to local government infrastructure procurement. While Regional Organisation Councils in Queensland have attempted to create an environment for collaboration, this has been difficult to achieve in practice. Due to its independence, LG Infrastructure Services can avoid the perception associated with large councils participating in regional collaborations, specifically that they are controlling the agenda. LG Infrastructure Services has also been able to secure state government funds to provide seed funding to collaborative projects as a ‘sweetener’ to entice local governments to spend money. An example was cited whereby a water pressure and leakage management project in south east Queensland applied state government money that would otherwise have been provided to local government through a subsidy scheme. Instead of providing 40 per cent of agreed infrastructure funding to local governments on completion of the project, LG Infrastructure Services was able to convince the state government to provide the funding upfront as an incentive.
LG Infrastructure Services has been generally well-received in Queensland. This is firstly because local governments are not obliged to use the service, and secondly because the services on offer are either not provided by other consultants or are otherwise fully booked or unaffordable. Some local governments have opposed LG Infrastructure Services but this has been in response to ‘unpopular’ advice (for example where a local government has
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been advised against pursuing particular infrastructure due to an inability to fund it) and/or resistance by some far northern Queensland local governments to receiving advice from ‘experts’ from the city. LG Infrastructure Services accepts this as a consequence of the services it provides and accepts that some criticism is unavoidable.595
From the Committee’s perspective, there is value in exploring the LG Infrastructure Services model further and its applicability to a Western Australian context. The geographic diffusion and size of Queensland’s local governments are comparable to Western Australia as are the difficulties and expenses incurred by local governments with respect to infrastructure procurement. Similar benefits arising from economies of scale and regional collaboration as facilitated by LG Infrastructure Services in Queensland could also be expected in Western Australia.
A further benefit from establishing an equivalent in Western Australia would be the information- sharing that could occur in relation to best practice for infrastructure projects (particularly in regional areas). In the meantime, by establishing an equivalent in this state, Western Australia could use the information and experience already garnered by LG Infrastructure Services in Queensland.
WALGA recognises the need for greater cooperation between local government and the state government:
More and more we need to partner with the state government in the delivery of infrastructure because the lines between the responsibilities of local government and the state government are blurring. We are now providing infrastructure for aged care, which should not be a local government matter, but communities demand it. We are supplying medical practices and houses for doctors and so on. Again, that is a state and commonwealth issue. We provide also houses for policemen and school teachers because without them they will not stay in the districts. Local government must take a more regional approach but we also need to share those resources with the state government and make sure that we can get the best bang for our buck.596
When queried about the LG Infrastructure Services model, WALGA responded that there are definite strengths associated with the model, however there is scope for a greater emphasis on financial assistance to local governments:
The Queensland Local Government Infrastructure Services business model certainly does interest us, and where we see the strengths in that is the partnership with the state government and, indeed, the linkage with the local government and Treasury in rolling that out. The additions that we see to that to make it better served is to link it with the Local Government Finance Authority of South Australia. Essentially, that is a joint venture between the local government sector and the state in financing major bits of infrastructure and so on over a long period. If we take the partnership approach in Queensland and
595 Ibid. 596 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 9 April 2008, p6.
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marry that up with the partnership with Treasury and state, we would have the complete model.597
WALGA refers to the Local Government Finance Authority of South Australia, which is a statutory authority managed and administered by a Board of Trustees. The functions of the Authority are ‘to develop and implement borrowing and investment programs for the benefit of Councils and prescribed local government bodies; and to engage in such other financial activities as are determined by the Minister, after consultation with the Local Government Association, to be in the interest of local government’.598
WALGA released its draft Systemic Sustainability Study (SSS) report for comment by the local government sector on 28 February 2008. The SSS promotes the remodelling of the local government sector in Western Australia along the lines of a regional model (which is discussed further below). The proposed long-term vision is for the remodelled local government sector to be supported by an ‘institutional framework’ comprising:
A Local Government Independent Assistance Commission to offer a full range of advisory and support services to the sector.
A Local Government Finance Authority to support the financial needs of Local Government, including the management and funding of infrastructure through regional mechanisms.
A Local Government Standards Office to create and oversee standards of performance within Local Government.599
The SSS suggests that a Local Government Independent Assistance Commission would ‘fill a current gap by undertaking independent assessments of Local Government finances, make recommendations for improvement and encourage consistency in the areas of financial reporting and asset management’.600 The proposed functions of the Independent Assistance Commission parallels some aspects of LG Infrastructure Services, however the WALGA vision goes further by emphasising the creation of a Finance Authority. The SSS describes the Local Government Finance Authority as being ‘effectively an investment and borrowing facility equivalent to a bank’, which would ideally operate on a state-wide basis to ‘address the aggregated funding needs of Local Government’.601
597 Ibid., p2. 598 Government of South Australia, ‘Service SA’, 22 November 2007. Available at www.service.sa.gov.au/ContentPages/sagovt/DepartmentDetails.aspx?entityid=1693#Entity1309 Accessed on 29 April 2008. 599 Western Australian Local Government Association, ‘The Journey: Sustainability into the Future. Shaping the Future of Local Government in Western Australia’ (SSS Draft Report), February 2008, p185. 600 Ibid., p127. 601 Ibid., p65.
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LG Infrastructure Services highlighted the importance of regional collaborations to local government infrastructure procurement and delivery in Queensland (refer to p127). WALGA similarly advocates for greater regional collaboration with respect to delivery of local government services and functions under its proposed ‘Regional Model’, a key feature of which is the retention of existing representation arrangements.602 This arrangement could conceivably be vulnerable to disproportionate control by one or more member Councils constituting the regional body, in which case facilitation of collaborate projects by an independent body such as LG Infrastructure Services would be an advantage, and is worth exploring further.
WALGA considers the particular merits of the Queensland model to be the ability of LG Infrastructure Services to draw expertise from Treasury while being a separate entity, and also the provision of assistance without taking control from local governments.603 While the form that (an) independent agency/agencies might take (should this option be pursued) remains unresolved, WALGA supports further investigation in this regard:
One of the strengths that the Queensland model has is its linkage with Treasury in the delivery of planning and also in making sure that the services are delivered at the right scale. We have not examined that model in detail with the Western Australian government but…we would like to encourage a feasibility study into that sort of project. The Queensland model potentially lacks a financial services element. The Queensland model brings together the planning and the delivery well but maybe misses out on the financial services; that is, the depositing and the provision of finance for the delivery of that sort of infrastructure. In both of those two areas, we believe that a strong alignment in some form—whether it is the joint venture form of Queensland or some other corporate structure—is one of the key strengths to operating at the right scale to deliver the sort of infrastructure that the state is looking for.604
Finding 33
There is value in exploring the Queensland LG Infrastructure Services model further and its applicability to the Western Australian context.
Having identified scope for further investigation of the LG Infrastructure Services model in the Western Australian context, the Committee acknowledges and commends the work that has been undertaken to date by WALGA. It would be valuable for this work to continue and the Committee supports the ongoing investigation of the proposals put forward in the SSS (concerning mechanisms for improving infrastructure funding and delivery by local governments) by WALGA in cooperation with the state government.
602 Ibid., p7. 603 Mr Ian Duncan, Economist, Western Australian Local Government Association, Transcript of Evidence, 9 April 2008, p6. 604 Ibid., p5.
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Recommendation 9
That the Western Australian Government, in cooperation with the Western Australian Local Government Association, investigate the feasibility of an independent advisory body or bodies to assist local governments with the funding and delivery of infrastructure in this state.
Improving the efficiency of processes is one way of easing the burden on local governments. Another involves assisting local governments to meet ongoing infrastructure costs. This requires increasing the funding ability of local governments.
(b) Increasing the ability of local governments to fund infrastructure
The Chamber of Commerce and Industry identified how infrastructure provided by local government is significant in terms of attracting businesses and people to the state however cited that local governments have difficulties adequately maintaining this infrastructure. The CCI identified scope for further investigation into whether local governments ‘have the capacity to maintain the infrastructure with which they have been vested and how local infrastructure management could be efficiently structured’.605
In April 2008, the Australian Government Productivity Commission released a research report, Assessing Local Government Revenue Raising Capacity. The report identified that local government revenue comprises of own-source revenue as well as grants from federal and state governments. While there is variation across local governments nationally with respect to the proportion of own-source revenue and grants, own-source revenue is the primary revenue source for most local governments:
Own-source revenue represents about 83 per cent of total revenue, aggregated at the national level. Together, property rates and fees and charges account for most of own- source revenue.606
(i) State Agreements and local government rates
The Committee received input suggesting that local government revenue is being unfairly constrained by rating concessions granted through State Agreements. This is pertinent given the significance of own-source revenue to most local governments and the fact that the majority of this revenue is sourced through rates.
As described in the Australian Government Productivity Commission’s Research Report:
605 Submission No. 19 from Chamber of Commerce and Industry Western Australia, 29 May 2007, p19. 606 Australian Government Productivity Commission, Assessing Local Government Revenue Raising Capacity Research Report, April 2008, p xxi. Available at: www.pc.gov.au/__data/assets/pdf_file/0010/78706/localgovernment.pdf Accessed on 30 April 2008.
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State Agreement Acts in Western Australia can limit the rating powers of councils in relation to land leased for mining or resource development purposes. The State Agreements are typically long-term contracts between the WA Government and developers of resource projects including the North West Shelf natural gas processing projects, the Pilbara iron ore projects, timber processing, coal and other resource development projects…The State Agreement Acts typically specify that the unimproved value of land, which is subject to leases or easements as part of resource development projects, can be rated…Land utilised for residential or non-rural purposes is rateable based on the gross rental value.607
The basis of local government rates in Western Australia is as per the Local Government Act 1995 and falls into two categories: ‘unimproved value’ where the land is used predominantly for rural purposes; and ‘gross rental value’ where the land is used predominantly for non-rural purposes.608 The Shire of Roebourne noted that ‘unimproved value’ is really meant for farming communities and is not suitable for industrial communities yet major companies could pay ‘unimproved value’ for construction camps.609
WALGA drew attention to the tendency for State Agreements to grant rate exemptions to mining companies, which causes a drain on local government resources and ‘short changes’ the local community.610
The implications that rating exemptions have for local government revenue is explained in WALGA’s draft SSS report as follows:
The Local Government Act 1995 (the Act) at Section 626(1) declares all land rateable except for that land declared non-rateable. There are numerous circumstances where rates are not payable due to their general or specific exclusion under various legislation. This erosion of the rate base is of serious concern to many Local Governments. Reducing the scope of exemption from rates could have a substantial impact of increasing the rate base and assist with achieving an improved own source revenue outcome.611
Peel Development Commission also stated that:
State Agreement Acts should be reviewed to facilitate a more consistent and equitable outcome for local communities. In some cases, it was felt that these should have an inbuilt ‘sunset clause’ to ensure that what was established initially to help kick start a project is revised periodically so private enterprise do not continue to receive substantial economic concessions at the detriment of local communities.612
607 Ibid., p202. 608 Section 6.28(2) Local Government Act 1995 (WA). 609 Mr Allan Moles, Chief Executive Officer, Shire of Roebourne, Briefing, 30 July 2007. 610 Submission No. 8 from Western Australian Local Government Association, 19 April 2007, p5. 611 Western Australian Local Government Association, ‘The Journey: Sustainability into the Future. Shaping the Future of Local Government in Western Australia’ (SSS Draft Report), February 2008, p80. 612 Submission No. 14 from Peel Development Commission, 27 April 2007, p5.
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The Productivity Commission found in its report that rating exemptions do reduce rate bases although this varies across local governments depending on the proportion of exempt land and the extent to which local governments can compensate by setting higher rates than required on non- exempt land.613 In terms of the exact implications that State Agreement Acts have in Western Australia, a study is currently underway by DoIR examining rating and approvals under those Acts. DoIR advised that the study will address ‘the issue of the appropriate methodology for rating of land’ and also covers the ‘provision of social infrastructure by local authorities’. The findings of the study are scheduled to be presented to the state government in mid-2008.614
Finding 34
There is evidence to suggest that local governments may be unfairly impacted by rating concessions granted through State Agreement Acts. The Committee supports efforts by the Department of Industry and Resources to investigate an appropriate methodology for rating land under State Agreements.
(ii) Developer contributions
WALGA has highlighted developer contributions as a possible mechanism for funding ancillary hard and soft infrastructure associated with major developments.615 The Western Australian Planning Commission defines developer contributions as ‘legally enforceable contributions that a developer is required to make for the provision of infrastructure and which are directly related to the needs arising from the development’.616 Western Australia already has certain provisions in place enabling developer contributions however WALGA refers to a report developed in conjunction with the Urban Development Institute of Australia, and Department for Planning and Infrastructure, which examines the potential for a more comprehensive developer contribution regime in Western Australia.
The report, Contributions to Community Infrastructure, identifies the main reasons for using developer contributions to fund infrastructure provision to be as follows: 1. When carefully applied they augment local government funds by taxing those who benefit directly from infrastructure improvement…;
613 Australian Government Productivity Commission, Assessing Local Government Revenue Raising Capacity Research Report, April 2008, p xxxviii. Available at: www.pc.gov.au/__data/assets/pdf_file/0010/78706/localgovernment.pdf Accessed on 30 April 2008. 614 Mr Peter Kiossev, General Manager, Infrastructure Policy, Department of Industry and Resources, Transcript of Evidence, 21 November 2007, p3. 615 Submission No. 8 from Western Australian Local Government Association, 19 April 2007, p6. 616 Western Australian Planning Commission, Planning Bulletin No. 18 Developer Contributions for Infrastructure, 18 February 1997, p2. Available at: www.planning.wa.gov.au/Publications/Planning+bulletins/default.aspx Accessed on 25 January 2008.
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2. It is economically efficient for development charges (reflecting the costs of infrastructure provision) to be levied on those responsible for the development so that infrastructure costs are included in development decision making; and 3. It is equitable to charge those individuals who benefit from public investment in infrastructure.617 The report was developed in response to growth pressures on the capacity of local governments to deliver infrastructure, and the need to consider contributions to assist with infrastructure provision. The report examines the Western Australian context for developer contributions including the current framework and examples of developer contribution agreements, and developer contribution regimes in other states. It recommends the development of a statutory framework for implementing developer contributions (via a comprehensive State Planning Policy), the use of developer contribution plans and voluntary agreements, and makes recommendations for the calculation of contributions, and accounting for funds collected.618
DPI advised that the Minister for Planning and Infrastructure has given in-principle support to the recommendations of the Contributions to Community Infrastructure report, and in line with a recommendation of the report, DPI will prepare a State Planning Policy to put in place an updated and more comprehensive system for developer contributions. DPI states that this would be ‘particularly beneficial in helping local government better support growing communities with adequate infrastructure’.619
Major resource projects are not subject to the same planning and development controls as other residential/commercial/industrial developments within local government areas and, in the main, are not subject to local town planning schemes,620 which underpin the existing framework for developer contribution plans.621 WALGA has therefore suggested that a system of developer contributions should be extended to major users of key infrastructure projects as a ‘state-wide model will assist in ensuring appropriate and uniform fees are applied’.622 Using the Ravensthorpe Nickel Project as an example, Cr Bill Mitchell, President, WALGA described the benefits that such a system might have: …with an open and transparent process of a development contribution to major projects, there would need to be a needs analysis: how many people will be in the Ravensthorpe area? How long will the mine run for? Will you have fly-in, fly-out or will you have semi- residential commuting from Hopetoun or Albany or Esperance or wherever else it may be?
617 Urban Development Institute of Australia (WA Division), Western Australian Local Government Association, Department for Planning and Infrastructure, Contributions to Community Infrastructure Report, report prepared by Syme Marmion & Co., Perth, September 2006, p3. 618 Ibid., pp 3-19. 619 Submission No. 16 from Department for Planning and Infrastructure, 11 May 2007, p2. 620 Section 120 Mining Act 1978 (WA). See also Section 162(2) Planning and Development Act 2005 (WA). 621 Urban Development Institute of Australia (WA Division), Western Australian Local Government Association, Department for Planning and Infrastructure, Contributions to Community Infrastructure Report, report prepared by Syme Marmion & Co., Perth, September 2006, p4. 622 Submission No. 8 from Western Australian Local Government Association, 19 April 2007, p6.
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Therefore, what are the infrastructural needs: do we need a large regional airport? Do we need better roads to those regional centres so that people can drive there? Do we need the sport and recreation facilities, the libraries and all the other bits and pieces that local governments provide? Then you can get a bit of an equity across the page. At the moment, more than 50 per cent of any money that is spent on infrastructure in WA comes from the rate base, and clearly, not everyone pays rates.623 Instead of focusing on resource developments, DPI advised that the State Planning Policy under preparation will adopt a broader view of development whether this is in regional areas or not. The State Planning Policy will focus on providing local governments with the flexibility to customise a developer contributions scheme:
…with developer contributions there is usually a nexus between the impact of a proposal and the contributions that the developer is therefore asked to make. Usually there is a nexus that states that if a local government is asking for a contribution, it is because that development generates some demand or impact. Conceptually, one of the conversations happening within the state about the resource projects is: what impact are they having and, therefore, what contribution should they make to help offset some of the impacts, whether they be social, environmental or economic in terms of local communities? We are working closely with WALGA to introduce a state planning policy … It is really about local governments having a voluntary framework within which to introduce contributions rather than the state saying to local authorities that they have to have this scheme. There are base requirements that we administer through our approvals system, but if local authorities want a more comprehensive contribution scheme, it is the local authorities that determine what matters would be going inside that contribution scheme.624
Evidence to the Committee suggests that major resource projects can put strain on local (particularly regional) communities especially with respect to social infrastructure. The principle of developer contributions is sound insomuch as the developer should contribute towards offsetting an impact clearly arising from that development. In terms of an appropriate mechanism, as discussed above, a broad approach is being adopted in the drafting of a State Planning Policy. Rather than focusing on resource developments per se, DPI has suggested that local governments instead be given the tools to negotiate the exact nature of developer contributions. While the existing framework for applying developer contribution plans may not extend to major infrastructure projects, voluntary agreements between local governments and developers, which are already recognised in Western Australia,625 would continue to be an option.
The Ravensthorpe Nickel Project is one example where the developer (BHP Billiton) has made voluntary contributions (to the order of $7 million) to the local community over and above infrastructure commitments contained within its Memorandum of Understanding with the state
623 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, p8. 624 Ms Dorte Ekelund, Deputy Director General, Department for Planning and Infrastructure, Transcript of Evidence, 14 November 2007, p12. 625 Urban Development Institute of Australia (WA Division), Western Australian Local Government Association, Department for Planning and Infrastructure, Contributions to Community Infrastructure Report, report prepared by Syme Marmion & Co., Perth, September 2006, p15.
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government. BHP Billiton advised that it ‘supports a partnership model for the planning and development of community infrastructure in WA’ and emphasises the importance of working together with local government to achieve the best outcome:
To implement delivery of community infrastructure, it is important that local government participates in the planning and implementation processes.626
According to BHP Billiton, there was close consultative liaison with the local government authority (the Shire of Ravensthorpe) with respect to how voluntary funds might be applied, however this did not follow a written process or formal agreement. The only legal agreement entered into with the Shire pertained to maintenance of the Ravensthorpe Airport but this was part of core (and not voluntary) funding.627
In terms of more binding commitments with respect to social infrastructure, as mentioned in Chapter 2.2, State Agreements commonly include how development proposals are to be submitted and approved, and can also detail infrastructure provision. In Chapter 3.4, the North West Gas Development (Woodside) Agreement Act 1979 was briefly discussed and how under the terms of that Agreement, the NWSV partners are required to assist with funding ‘appropriate community recreation, civic, social and commercial amenities’. According to Woodside,
We have a strong track record of contributing to regional community infrastructure and community development programs over the past 30 years. In the 1980s, Woodside and its North West Shelf joint venture partners contributed $72 million towards the Nickol Bay Hospital, schools, the police station extensions, water supply headworks, caravan park subsidies, library, the Walkington theatre, the boat ramp, Tambrey Centre, roads, airport, power, water supply to the Burrup, the MOF [Materials Offloading Facility] wharf and the port authority.628
As discussed in Chapter 3.6, FMG is similarly required under the terms of the State Agreements applicable to its Pilbara Iron Ore Project to develop Community Development Plans. The centrepiece of FMG’s Community Development Plan is a vocational training and employment centre, which aims to provide meaningful employment for Indigenous people who have completed the training program. The actual financial contribution in this sense however, is perhaps less significant than what the program seeks to achieve in the long-term:
We do not put a lot of money into it because there is plenty of federal and state funding, and there are plenty of education establishments that are able to do the job. The issue is that the people need an incentive to do it, an incentive that says that when you graduate from this course there is guaranteed employment for you. That was the centrepiece of our obligation; the offer of guaranteed employment.629
626 Submission No. 17 from BHP Billiton, May 2007, pp 7-8. 627 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Email, 8 April 2008. 628 Mr Keith Spence, Executive Vice-President Enterprise Capability, Woodside Energy Ltd, Transcript of Evidence, 10 March 2008, p3. 629 Mr Julian Tapp, Head of Government Relations, Fortescue Metals Group, Transcript of Evidence, 10 March 2008, p8.
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It is significant to note that while companies do contribute funds towards social infrastructure via State Agreement obligations or voluntarily, there is generally discretion regarding the quantum of the contribution and what the contribution might actually go towards. Also of note is how the motivation behind company contributions may not be precisely aligned to community aspirations or needs even though ultimately the community does benefit. According to Woodside:
…while it may appear externally to be purely philanthropic, we do not do too much of that. Most of it has line sight.630
As explained further in relation to Woodside’s Pluto project:
…when we are making decisions about our projects, fundamentally we have to be confident we can execute our projects on a schedule to plan. So it becomes a very hard- nosed business decision for a company like ours, when we are looking at investing nearly $12 billion into Pluto, that we have to be able to accommodate the people that are going to construct the thing…it was a commercial negotiation at the end of the day that saw the project providing not only for its own needs but also for the needs of the broader community in relation to the housing construction demands, part of which, of course, we contribute to through our own activities. So, yes, we are being called upon to provide hard infrastructure. We do so very much with an eye to delivering our projects. We are required to accommodate our workers and we try to reduce the burden that the construction phase puts on the normal housing market... Yes, we do fund on a discretionary basis—Woodside alone and with our North West Shelf participants—about $3 million a year at the moment, going into things like childcare, health services and so on.631
Resources companies are to be commended for the contributions they make to local communities, which undoubtedly benefit those communities. The risk of relying solely on voluntary or discretionary funding mechanisms however, is that the resultant social infrastructure, while still to the benefit of the wider community, may be motivated by commercial objectives intended to benefit a company’s workforce. This point was raised by the Shire of Roebourne in Chapter 3.4 (refer to p38) whereby it was felt that companies target funding to those services (such as childcare) that will be of greatest benefit to their employees. To ensure a more meaningful outcome therefore, it is important for there to be greater liaison and/or a more inclusive approach to priority setting that involves both industry and local government (such as what has occurred in Ravensthorpe).
630 Mr Keith Spence, Executive Vice-President Enterprise Capability, Woodside Energy Ltd, Transcript of Evidence, 10 March 2008, p6. 631 Mr Niegel Grazia, Vice-President Government Affairs, Woodside Energy Ltd, Transcript of Evidence, 10 March 2008, pp5-6.
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Finding 35
Developer contributions via voluntary arrangements and/or State Agreements are an appropriate mechanism for achieving more equitable outcomes in the provision of social infrastructure to communities impacted by major infrastructure projects, however this needs to occur in consultation with local government to ensure that benefits to the community are maximised.
(iii) Other mechanisms
The potentially compromising effect of State Agreements on local government rate revenue has already been discussed. In terms of the actual rating mechanism itself, WALGA has identified a number of deficiencies which also have consequences for infrastructure funding:
It is not growth dependent. Local Government does not directly receive financial benefit from economic growth and so has no financial incentive to invest in infrastructure. It provides a very narrow pool of people to fund infrastructure investment. This is particularly pronounced for regional and rural Local Governments. If the local infrastructure is being utilised by the resources industry, then the small local community is required to pay for infrastructure benefiting the entire nation. It is ideal for steady growth over the long-term. The boom-bust demand for infrastructure from the resource sector does not fit with the funding capacity of the rating mechanism.632
According to WALGA, given these deficiencies exist in what represents the most significant component of local government own-source revenue, it is important that there are other fiscal incentives in place for local government to provide adequate infrastructure.633 One mechanism put forward by WALGA is the establishment of a community infrastructure fund by the federal government:
…we are seeking to have a community infrastructure fund of $1 billion dollars across Australia for four years; that is, $250 million a year. That would mean about $20 million into Western Australia on an annual basis for at least four years.634
This idea was initially mooted in a report commissioned by the Australian Local Government Association (ALGA) in 2006 into the financial sustainability of local governments. The report found that over time local governments have assumed increasing responsibility for various social
632 Submission No. 8 from Western Australian Local Government Association, 19 April 2007, p5. 633 Ibid. 634 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, p9.
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and human services in addition to the more traditional areas of responsibility such as physical infrastructure, and that expenditure in real terms has been increasing. The report also found that:
The financial constraints facing local government, in addition to the focus on roads and water/sewerage infrastructure has arguably come at the cost of community infrastructure [i.e. “social infrastructure” including libraries, community halls, recreation facilities]. Councils often have limited resources or capacity to address the growing backlog of community infrastructure.635
In order to assist local governments to meet increasing demands for infrastructure and services, the ALGA report recommended the establishment of a Local Community Infrastructure Renewals Fund, which could be targeted to the renewal of existing community infrastructure assets. ALGA suggested that the size of the fund ($250 million per year) and distribution methodology could mirror that of the existing Commonwealth Roads to Recovery program636 and funds could be sourced from the commonwealth with the potential for state and territory governments to increase funding support for local governments by matching funding dollar for dollar.637
WALGA President, Cr Bill Mitchell, advised that the suggestion for a community infrastructure fund had been put to the (now incumbent) federal government prior to the federal election in November 2007. The response at the time was that the concept would be considered as part of the Australian Labor Party’s (ALP) policy, if elected.638 Infrastructure pressures confronting growing communities were acknowledged at the launch of the ALP’s Regional Policy in November 2007. The ‘Better Regions Program’ was put forward as a means for investing in community infrastructure, including infrastructure in rapid growth areas. According to the policy document, funding will be used to ‘improve community amenity and revitalise community infrastructure’.639 It is yet to be determined exactly what this program will involve and when and how the initiative will be implemented.
Also raised in the ALGA report and highlighted by WALGA640 was potential for a fairer mechanism for calculating Financial Assistance Grants. Supplementing own-source revenue, grants from federal and state governments make up the remainder of local government
635 Australian Local Government Association, National Financial Sustainability Study of Local Government, report prepared by PricewaterhouseCoopers, Sydney, November 2006, pp140-141. 636 Roads to Recovery is a particular AusLink funding program. The program enables the granting of federal funds to local and state governments for local roads maintenance and upgrading. Information taken from Australian Government, Department of Infrastructure, Transport, Regional Development and Local Government, ‘Roads to Recovery’, 19 December 2007. Available at: www.auslink.gov.au/funding/r2r/index.aspx Accessed on 6 May 2008. 637 Ibid., pp 140-143. 638 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, pp 9-10. 639 Australian Labor Party, Regional Development for a Sustainable Future, 20 November 2007, p5. Available at: www.labor.com.au/media/1107/sperd200.php Accessed on 31 January 2008. 640 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, p2.
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revenues.641 Untied federal grants are provided under the Local Government (Financial Assistance) Act 1995 (Cth) in the form of Financial Assistance Grants. These fall into two categories: a general purpose component distributed between states on a per capita basis; and an identified local road component distributed on the basis of fixed historical shares (which are still untied although allocated for road funding as local governments may apply funding in accordance with their own priorities). The grants pool is adjusted each year in line with changes in population and the Consumer Price Index.642
The ALGA report argues that while the federal taxation intake has increased over time, the same quantum has not been reflected in the escalation of Financial Assistance Grants leading to an overall decrease in Financial Assistance Grants as a proportion of commonwealth revenues. To enable local governments to access a revenue stream that grows in line with the economy, and keeps up with infrastructure demands, ALGA is lobbying for Financial Assistance Grants to be made a fixed proportion of commonwealth taxation revenues.643 WALGA has suggested that an alternative escalation methodology might involve ‘a new formula tailored to Local Government cost movements (perhaps involving a combination of the Australian Bureau of Statistics (ABS) Wage Cost Index and Construction Cost Index coupled with population growth)’.644 As explained further by WALGA, the pool of Financial Assistance Grants should be ‘not less than 1 per cent of the gross taxation take of the commonwealth, net of GST’. This would enhance the quantum of untied grants to local governments, the majority of which goes towards infrastructure.645
Finding 36
There is scope for the federal government to expand fiscal incentives for local government with respect to infrastructure.
641 Australian Government Productivity Commission, Assessing Local Government Revenue Raising Capacity Research Report, April 2008, p xxii. Available at: www.pc.gov.au/__data/assets/pdf_file/0010/78706/localgovernment.pdf Accessed on 30 April 2008. 642 Australian Government, Department of Infrastructure, Transport, Regional Development and Local Government, ‘Financial Assistance Grants to Local Government’, 20 December 2007. Available at: www.infrastructure.gov.au/local/assistance/index.aspx Accessed on 31 January 2008. 643 Australian Local Government Association, National Financial Sustainability Study of Local Government, report prepared by PricewaterhouseCoopers, Sydney, November 2006, pp 54, 136. 644 Western Australian Local Government Association, ‘The Journey: Sustainability into the Future. Shaping the Future of Local Government in Western Australia’ (SSS Draft Report), February 2008, p71. 645 Cr Bill Mitchell, President, Western Australian Local Government Association, Transcript of Evidence, 24 October 2007, p2.
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Recommendation 10
That the Western Australian Government make submission to the federal government to investigate the potential for community infrastructure funding and/or scope for revising the methodology for escalating Financial Assistance Grants.
5.5 Engaging the private sector
There are several means of engaging the private sector in the funding of infrastructure projects. Infrastructure provision covers a ‘spectrum’ ranging from fully public to fully private and encompasses various combinations of public-private involvement differing in the relative proportions of public and private sector control.646 Common forms of public-private involvement in infrastructure include:
Build-Own-Operate-Transfer (BOOT) whereby infrastructure projects are built, owned and operated by the private sector for a substantial period of time after which ownership is transferred to the public sector; and
Build-Own-Operate (BOO) whereby infrastructure projects are built, owned and operated by the private sector in perpetuity.647
In Western Australia, the state government has identified scope for the private sector to assume a greater role in infrastructure provision over the next 20 years. Deregulation of gas and electricity markets has increased the scope for economic infrastructure to be provided via the BOO mechanism provided commercial objectives can be satisfied and there is sufficient benefit to offset the commercial risks. The state government has also identified that there may be circumstances where BOOT arrangements are appropriate. BOOT arrangements typically require that the private sector can operate the infrastructure asset as a commercial enterprise before transferring it to public ownership. This arrangement primarily suits economic infrastructure including wastewater treatment facilities, roads and ports, but can also be applied to certain social infrastructure such as education and health facilities.648
Another form of public-private engagement with particular relevance to Western Australia is the public-private partnership. PPP has been defined broadly as the private sector assuming responsibility for ‘financing, designing, building, maintaining, and operating infrastructure assets
646 Government of Tasmania Department of Treasury and Finance, Guiding Principles for Private Sector Participation in Public Infrastructure Provision, July 2000, p27. Available at: http://147.109.254.181/domino/bfg.nsf/029C69C440C1B312CA256C940004922D/$FILE/Guiding+principles+for+PSP+ in+PIP_V1.pdf Accessed on 5 February 2008. 647 Government of Western Australia, Framework for the State Infrastructure Strategy Green Paper, September 2006, pp36- 37. 648 Ibid.
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traditionally provided by the public sector’649 and is therefore inclusive of various arrangements along the ‘spectrum’ such as BOO and BOOT.650 The Western Australian Government however, has a more specific definition whereby PPP refers to ‘the procurement of infrastructure and ancillary services through a joint arrangement between the public and private sectors’. While similar to BOO and BOOT, the distinction is made that in PPP, the government continues to deliver the core services associated with the facility while the private sector delivers ancillary services.651 Forms of infrastructure identified as being most suitable for PPP in Western Australia include transport, health, and justice facilities, schools, and support infrastructure for industry.652
One of the main advantages identified for PPPs is the reduced cost of infrastructure provision and therefore better value for money for the community. To achieve this, PPPs draw upon areas of expertise particular to the public and private sectors such as long-term experience in the provision of public services, and innovative methods of delivery respectively.653
(a) Potential for private sector engagement in infrastructure in Western Australia
In some cases, private sector engagement in Western Australia has already resulted in successful infrastructure outcomes. In the Pilbara for example, the Committee heard how Woodside Energy Ltd contributed towards the widening of the Dampier Port access road. The road had to be widened in order to facilitate road transportation of 30m wide modules during the construction of the North West Shelf fifth train. According to the Dampier Port Authority, this has been a good permanent investment for the port.654
Various submissions to this Inquiry have supported greater private sector involvement in infrastructure. The Goldfields Esperance Area Consultative Committee states that ‘Commonwealth, State and local governments should develop further ways in which to encourage private sector involvement in major economic infrastructure, either through direct provision by proponents, provision by third party providers, or through appropriate public-private partnership (PPP) arrangements’.655 The Great Southern Development Commission similarly considers that a funding solution will include all levels of government and the private sector and states that
649 Sevilla, J., ‘Accountability and Control of Public Spending in a Decentralised and Delegated Environment’, OECD Journal on Budgeting, vol. 5, no.2, 2005, p16. 650 Webb, R., and Pulle, E., ‘Public Private Partnerships: An Introduction’, Research Paper no. 1 2002-03, 24 September 2002. Available at: www.aph.gov.au/LIBRARY/pubs/rp/2002-03/03RP01.htm#whatareppp Accessed on 5 February 2008. 651 Department of Treasury and Finance, Partnerships for Growth, Government of Western Australia, Perth, December 2002, p3. 652 Ibid., p6. 653 Ibid., p4. See also Webb, R., and Pulle, E., ‘Public Private Partnerships: An Introduction’, Research Paper no. 1 2002- 03, 24 September 2002. Available at: www.aph.gov.au/LIBRARY/pubs/rp/2002-03/03RP01.htm#whatareppp Accessed on 5 February 2008. 654 Mr Steve Lewis, Chief Executive Officer, Dampier Port Authority, Briefing, 1 August 2007. 655 Submission No. 2 from Goldfields Esperance Area Consultative Committee, 29 March 2007, p6.
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funding infrastructure to sustain existing and future growth in the south west region will require some combination of funding from ‘all spheres of government and the private sector’.656
Private sector involvement and PPP in particular is considered a good option for realising both private sector and government infrastructure agendas.657 The Chamber of Commerce and Industry supports engagement of the private sector where this represents the best value for money for the community. According to the CCI, in some cases the private sector may be able to deliver a better outcome therefore freeing up government resources to provide infrastructure that only it can supply.658
Corporatised state government trading enterprises such as Western Power and the Water Corporation are also supportive of engaging the private sector in the provision of economic infrastructure. Western Power states that rapid growth in Western Australia is expected to require significant levels of capital expenditure on energy infrastructure. Constraints inherent in the existing funding approach have led Western Power to consider alternative funding arrangements including private sector involvement, as potential options for meeting commitments.659 The Water Corporation similarly sees the potential for private sector engagement:
To further optimise the delivery of water services infrastructure to its customers, the Water Corporation is developing a process to enable the private sector to competitively own and provide new water sources (including treatment) and wastewater treatment and disposal/reuse facilities. The Water Corporation sees this private sector participation initiative as a potential means to provide lower cost services to its customers, and is a logical extension of its current contracting strategies.660
Finding 37
There is potential for greater engagement of the private sector in infrastructure provision in Western Australia.
656 Submission No. 5 from Great Southern Development Commission, 17 April 2007, p2. 657 Submission No. 6 from Mr Peter Evans, 16 April 2007, p2. 658 Submission No. 19 from Chamber of Commerce and Industry Western Australia, 29 May 2007, pp 20-21. 659 Submission No. 9 from Western Power, 20 April 2007, pp 1-2. 660 Submission No. 4 from Water Corporation, 4 April 2007, p2.
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(b) Mechanisms to increase private sector investment in infrastructure
(i) Federal taxation measures
In their submission, GEACC refers to a report by the Western Australian Technology and Industry Advisory Council (TIAC), which states that governments should aim to ‘maximise private sector provision of infrastructure in order to reduce the cost and finance burdens on governments, reduce risks and maximise efficiency of both delivery and operation’.661 The TIAC report recommends that governments should work to increase infrastructure provision by the private sector via:
Better appreciation of, and approaches to management of risk to both providers and governments; Taxation regimes conducive to investment in high capital cost, long life assets; Revision of regulation of infrastructure assets to provide long-term benefits to customers and the economy; and Western Australian Government undertaking systematic performance reviews of strategic infrastructure provision (however provided) to assess long-term economic benefits/costs of different mechanisms and cases.662 The issue of encouraging investment in major infrastructure through a more favourable taxation regime has been raised in various submissions. The Department of Industry and Resources contends that the private sector’s ability to deliver infrastructure, particularly in rural and remote areas, is compromised by current federal taxation laws. This includes provisions which ‘limit interest deductions and depreciation expenses for private companies building and operating and owning infrastructure that generally would have been provided by the public sector’. DoIR argues that change to federal taxation arrangements and/or some form of government financial incentive (such as a subsidy) which acts in a similar way to accelerated depreciation would be necessary to prevent Western Australia from being disadvantaged:
…without changes to Commonwealth taxation arrangements and/or additional support and risk sharing from government, the private sector’s ability to provide regional and remote areas infrastructure that is traditionally provided by the public sector (at competitive end prices to users) could be limited. Clearly if the resulting service price offered to any prospective ‘worthwhile’ project is uncompetitive then the proponent of that project could favour other destinations over Western Australia.663
The Department for Planning and Infrastructure raises similar concerns as DoIR with regard to current federal taxation laws and the adverse effect this has on private sector investment in infrastructure. DPI considers that in order for ‘the Commonwealth Government to encourage private sector involvement in (previously provided public) infrastructure, including transport, re-
661 Western Australian Technology and Industry Advisory Council, Initiating and Supporting Major Economic Infrastructure for State Development: Opportunities for Government, September 2004, p45. Available at: www.tiac.wa.gov.au/opportunities/opportunities_for_govt.pdf Accessed on 7 February 2008. 662 Ibid., and as cited in Submission No. 2 from Goldfields Esperance Area Consultative Committee, 29 March 2007, p6. 663 Submission No. 10 from Department of Industry and Resources, 20 April 2007, p18.
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introducing accelerated depreciation would significantly improve their commercial viability to the private sector’.664
Accelerated depreciation refers to depreciation (a decline in value) of a project asset at a rate faster than the actual rate of decline of the asset’s usefulness. This enables a greater tax deduction earlier in a project’s life. With less tax being paid in the early stages of a project, the project proponent benefits by having more cash available to distribute to shareholders or reinvest.665 Changes to corporate taxation rates introduced by the federal government’s A New Tax System in 1999 reduced depreciation allowances thereby making investment in long-life infrastructure less financially attractive than other investments. To offset these changes, the federal government at the time advised that major infrastructure projects would be considered in the context of a ‘strategic investment coordination process’, which would include targeted investment allowances.666 The strategic investment coordination process was established to attract major projects to Australia, which would be likely to have significant economic and employment benefits but would otherwise locate elsewhere. The process requires project proposals to be considered on a case-by-case basis and comply with certain criteria to qualify for assistance.667 It appears that the strategic investment coordination process will continue under the incumbent federal government, to be administered by the federal Department of Innovation, Industry, Science and Research.668
Various project failures deriving from the previous federal government’s policy of strategic investment coordination have already been discussed in previous Chapters. The replacement of accelerated depreciation has also come under some criticism. The CCI for example, states:
CCI also believes that the replacement of accelerated depreciation with the ‘strategic investment coordination process’ was a retrograde step. Accelerated depreciation was particularly important in the case of risky projects and infrastructure, where there is greater than usual risk of the value of an asset on completion being significantly less that [sic] its cost to create.669
664 Submission No. 16 from Department for Planning and Infrastructure, 11 May 2007, Attachment 4, p15. 665 WA Department of Treasury and Finance, Business Investment in Western Australia Economic Research Paper, January 2006, p43. Available at: www.dtf.wa.gov.au/cms/uploadedFiles/business_investment2006.pdf Accessed on 8 February 2008. 666 Western Australian Technology and Industry Advisory Council, Initiating and Supporting Major Economic Infrastructure for State Development: Opportunities for Government, September 2004, p45. Available at: www.tiac.wa.gov.au/opportunities/opportunities_for_govt.pdf Accessed on 7 February 2008. 667 Australian Government Department of Innovation, Industry, Science and Research, ‘Strategic Investment Coordination’, nd. Available at: www.investaustralia.gov.au/OurServices/StrategicInvestmentCoordination/ Accessed on 8 February 2008. 668 Australian Government Department of Innovation, Industry, Science and Research, ‘Strategic Investment Coordination’, nd. Available at: www.innovation.gov.au/Programsandservices/StrategicInvestmentcoordinationsic/Pages/default.aspx Accessed on 9 April 2008. 669 Submission No. 19 from Chamber of Commerce and Industry Western Australia, 29 May 2007, p16.
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DTF identified that while accelerated depreciation benefited companies to varying degrees depending on circumstances, it was particularly significant for longer-life projects such as natural gas projects. For projects such as these, which can last for up to 30 years, the difference between the actual and accelerated life of an asset is large and therefore accelerated depreciation can be critical to project viability.670 APPEA also emphasised the importance of a favourable taxation regime to Australia remaining internationally competitive:
Write-off periods of 15 or 20 years for investment in upstream petroleum production facilities and LNG plant place Australian projects at a significant competitive disadvantage to virtually every other competing LNG project in the world (with write-off periods of 5-10 years commonly available in other countries)…Given the high up-front capital cost and long payback periods, the inability to deduct capital expenditures early in the project life has a major impact on project net present values and competitiveness.671
The TIAC report identified that ‘major project infrastructure often has a shorter economic life than its physical life, governed by the life of the project/s it supports. Yet such specialised infrastructure is sometimes treated the same as other infrastructure for depreciation purposes, when arguably it should be allowed to be depreciated more rapidly’.672
The TIAC report also mentions how as part of the federal changes in 1999, depreciation for specific classes of assets was introduced based on effective life, however, this has not been as effective as the previous system of accelerated depreciation.673 The CCI refers to more recent changes proposed by the federal government in the 2006-2007 Budget, specifically, that depreciation tax concessions would be increased in order to provide a greater incentive for private sector investment in infrastructure:
The diminishing value rate for determining depreciation deductions has now been increased from 150 per cent to 200 per cent (referred to as ‘double declining balance’), and this will apply to all eligible assets acquired on or after 10 May 2006. By aligning depreciation deductions for tax purposes more closely with the actual decline in the economic value of assets, this should improve resource allocation. The changes will enhance the effectiveness of the uniform capital allowance regime, which replaced accelerated depreciation in 2001.674
670 WA Department of Treasury and Finance, Business Investment in Western Australia Economic Research Paper, January 2006, p43. Available at: www.dtf.wa.gov.au/cms/uploadedFiles/business_investment2006.pdf Accessed on 8 February 2008. 671 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, pp6-7. 672 Western Australian Technology and Industry Advisory Council, Initiating and Supporting Major Economic Infrastructure for State Development: Opportunities for Government, September 2004, p45. Available at: www.tiac.wa.gov.au/opportunities/opportunities_for_govt.pdf Accessed on 7 February 2008. 673 Ibid. 674 Submission No. 19 from Chamber of Commerce and Industry Western Australia, 29 May 2007, pp 16-17.
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These changes took effect on 1 July 2006 and while not a reintroduction of accelerated depreciation, the higher rate enables a greater depreciation deduction in the early years of an asset’s effective life.675
Another mechanism to increase private sector engagement relates to tax benefits for private sector providers of public infrastructure. In September 2007, the federal government introduced amendments to income tax laws which would ‘encourage private sector investment in public private partnerships (PPPs) by reducing compliance costs, providing tax benefits and giving greater certainty to private builders of major infrastructure’.676 It is anticipated that these changes will lead to increased investment in infrastructure and PPP projects.677 The Committee notes that these amendments have taken effect.678
Finding 38
The federal government’s removal of accelerated depreciation as a means of valuing long-life infrastructure assets has been identified as a disincentive for private sector investment.
Finding 39
Recent federal government taxation reforms are a positive step towards redressing the removal of accelerated depreciation and encouraging greater private sector involvement in infrastructure provision.
(ii) Infrastructure procurement methods
The Department of Treasury and Finance has indicated that private sector investment may be a possible mechanism for meeting the state’s infrastructure needs without increasing debt levels and compromising the state’s AAA credit rating. DTF has identified increased scope for private sector involvement in the provision of infrastructure, particularly in a number of projects currently under consideration by the government such as Oakajee port and rail, and a new Pilbara port. A number of deficiencies have been highlighted however, including:
675 Parliament of Australia, ‘Bills Digest no. 135 2005-06. Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006’, 22 May 2006. Available at: www.aph.gov.au/library/Pubs/BD/2005- 06/06bd135.htm Accessed on 8 February 2008. 676 Parliament of Australia Senate, Standing Committee on Economics, ‘Tax Laws Amendment (2007 Measures No. 5) Bill 2007 [Provisions]’, September 2007. Available at: www.aph.gov.au/senate/committee/economics_ctte/tlab_5_2007/report/index.htm Accessed on 8 February 2008. 677 Hepworth, A., ‘PPP changes cut costs’, Australian Financial Review, 17 August 2007, p21. 678 Division 250 Income Tax Assessment Act 1997 (Commonwealth).
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a limited market for PPP which is only suited to certain types of projects;
ongoing government financial obligations to the private sector under PPP arrangements which are reported on the government’s balance sheet and form part of the government’s net debt;
the existing income tax framework which does not permit certain deductions and allowances to the private sector on infrastructure controlled by the state government (as discussed above); and
the failure of the market to always provide the quality of infrastructure demanded by society such that the public sector will always have a role in infrastructure provision that meets economic and social needs.679
DTF refers to ongoing financial obligations to the private sector as a consequence of PPPs. Since PPP generally involves the provision of a public infrastructure asset by a private sector entity for 20 to 30 years, it is usual for the private sector partner to charge an annual fee for the use of the asset. These costs can either be met by the government or through user charges, or through a combination of these.680 Where government meets the cost, it is reported on the balance sheet as debt and for that reason is less desirable from the state government’s perspective.681
In Queensland, the Committee learnt about a variant of the wholly privately financed PPP model, namely the Supported Debt Model (SDM). This model is being applied by the Queensland state government to its south east Queensland Schools Project, for which Expressions of Interest were being sought until March 2008.682 The project involves the design, construction, financing and provision of certain facilities management services for seven new schools in south east Queensland. Under the SDM, the private sector is required to provide 100 per cent of financing during the construction phase. In addition, during the operations phase, 70 per cent of financing is publicly funded through borrowings from the Queensland Treasury Corporation, with the remainder to be provided by the private sector.683 According to the Queensland Government, the main benefit of the SDM is that public sector debt can be used during the low risk operational phase of the project thereby enabling the government to take advantage of ‘its ability to borrow
679 Submission No. 18 from Department of Treasury and Finance, 21 May 2007, p11. 680 Sevilla, J., ‘Accountability and Control of Public Spending in a Decentralised and Delegated Environment’, OECD Journal on Budgeting, vol. 5, no.2, 2005, p17. 681 Mr Michael Court, Director Asset Planning and Management, Department of Treasury and Finance, Transcript of Evidence, 15 October 2007, p13. 682 Mr Mark Girard, Chief Executive, and Mr David Jay, Chair, LG Infrastructure Services, Briefing, 5 March 2008. 683 Queensland Department of Education, Training and the Arts, SEQ Schools Project Invitation for Expressions of Interest, 19 February 2008, p14. Available at: http://education.qld.gov.au/seqschoolsproject/ Accessed on 6 March 2008.
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money at a lower rate than the private sector’. Furthermore, ‘the general structure of the PPP and the services to be provided under the PPP remain the same under the Supported Debt Model’.684
In 2002, the Western Australian Government issued a policy and guidelines document, Partnerships for Growth, which details principles and processes for PPPs in Western Australia.685 While supportive of engaging the private sector, DTF is mindful of the limitations of PPP (as outlined above) and it has been reported that the state government is satisfied that its capital works program can be funded through traditional infrastructure procurement methods, which apply funds from the budget surplus and if necessary, borrowings from Treasury Corporation. Reinforcing the notion that publicly funded infrastructure is preferred by the state government, there are very few examples of completed PPP projects in Western Australia. Alliance contracting has been reported to be the state’s preferred model of delivering infrastructure.686
Alliance contracting (also known as project alliancing) is defined as ‘a form of procurement where the state or another government entity collaborates with one or more service providers [private sector parties] to share the risks and responsibilities in delivering the capital phase of a project’.687 Alliance contracting essentially represents a fully publicly funded project where private sector parties, as non-owner participants, are financially compensated albeit under a framework of project objectives and performance targets mutually developed and agreed to by both public and private sector partners. The strengths of alliance contracting include: the equal sharing of risks, responsibilities and rewards; development of a working culture that fosters innovation; and a collaborative approach that avoids blame. Some weaknesses include: difficulty in demonstrating value for money; lack of legal recourse against non-owner participants; and the significant costs and expertise needed to establish and manage alliance contracts. These characteristics of alliance contracting mean that as a form of infrastructure procurement, it is best suited to complex and high-risk infrastructure projects.688
684 Queensland Department of Education, Training and the Arts, ‘Frequently Asked Questions about the SEQ Schools Project’, nd. Available at: http://education.qld.gov.au/seqschoolsproject/pdfs/seq-schools-project-faq.pdf Accessed on 10 April 2008. 685 Department of Treasury and Finance, Partnerships for Growth. Policies and Guidelines for Public Private Partnerships in Western Australia, Government of Western Australia, Perth, December 2002. 686 Drummond, M., ‘State rejects private infrastructure stake’, The West Australian, 8 January 2008, p11. 687 For a comprehensive definition of ‘project alliancing’, see State of Victoria Department of Treasury and Finance, ‘Project Alliancing Practitioners’ Guide’, April 2006. Available at: www.dtf.vic.gov.au/CA25713E0002EF43/WebObj/CompleteProjectAllianceGuide/$File/Complete%20Project%20Allia nce%20Guide.pdf (p2). Accessed on 11 February 2008. 688 Ibid., pp 3, 8, 11.
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Finding 40
There is scope for greater private sector involvement in infrastructure provision in Western Australia although Public Private Partnerships may not necessarily be the most appropriate mechanism in all instances.
Finding 41
Other forms of infrastructure procurement involving the private sector such as variants of Public Private Partnerships and alliance contracting may be options for increasing engagement of the private sector in infrastructure provision in Western Australia.
(iii) Regulatory environment
The federal government is reportedly examining ways to standardise state and federal regulations on PPPs in order to create a regulatory environment more conducive to private sector involvement in infrastructure projects. Reform is to be managed by two working parties: the Business Regulation and Competition Working Group, chaired by the federal Minister for Finance and Deregulation, which will examine the reduction of the regulatory burden on business; and the COAG Infrastructure Working Group, chaired by the federal Minister for Infrastructure. Both groups will work together to review regulations. The new federal government body, Infrastructure Australia will also examine the expected rates of return from major projects, and in so doing, identify what the current impediments are to infrastructure investment.689 According to the federal Minister for Infrastructure, Infrastructure Australia will ‘streamline planning and approval processes across Commonwealth and state jurisdictions. It will standardise tender documents and contracts to promote best practice procurement and to expedite decision making’.690
(c) Other factors influencing private sector engagement
The private sector is already heavily involved in the provision of major infrastructure associated with resource projects. The Committee viewed this first hand when it visited the Burrup Peninsula and Ravensthorpe in 2007. The private sector’s contribution to infrastructure has been aptly described by Mr John Langoulant, CCI, in the following statement with which the Committee concurs:
One of the positive features of Western Australia is that the private infrastructure we have running - particularly in our key resource areas, mainly in the Pilbara - is world-class. We do not have the same degree of difficulty, for instance, in shipping our product through the
689 Crowe, D., and Hepworth, A., ‘Shake-up for $60bn in big projects’, Australian Financial Review, 11 February 2008, p1. 690 Hon. A.N. Albanese, MP, Minister for Infrastructure, Transport and Regional Development and Local Government, Commonwealth, House of Representatives, Parliamentary Debates (Hansard), 13 February 2008, p42.
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north as appears to be the case on the east coast of Australia for the shipping of coal through public ports. The railway and port infrastructure in the north is a great credit, I think, to the private industry that operates it…the committee may have seen the expansion of that infrastructure during times of extraordinary demand; I think it is of great credit to industry that it has been able to achieve this.691
The level of investment in and control of, infrastructure should be noted as it impacts on access to infrastructure and can also influence private infrastructure investment. In terms of economic infrastructure, the state government has a clear focus on ‘assistance through the provision of common-user infrastructure that assists a number of businesses’.692 Where the state government provides infrastructure to assist private industry, a regime guaranteeing access by other potential users is required in order to encourage further economic development.693 Once again the Committee was able to view this first hand during its visit to the Burrup Peninsula, where it observed the common-user infrastructure provided by the state government to support the Burrup Fertilisers project and facilitate future establishment of other industries. In another example of how industry can benefit from third party access arrangements, the Water Corporation is considering options to facilitate access by third parties to monopoly assets of the Water Corporation, which would enable them to independently service their own customers. This would potentially benefit mining and large industrial customers where according to the Water Corporation, ‘it can be more cost effective to ‘access’ existing infrastructure to service a project of often limited life, rather than meet the cost of developing duplicate infrastructure’.694
In contrast, industry is less supportive of the common-user approach particularly with regard to port and rail infrastructure. BHP Billiton and Rio Tinto reportedly need their own facilities between the iron ore mine and the port as these are integral parts of the production chain and help to ensure the stability of supplies.695 Rio Tinto also argues that since its Pilbara railway operates using highly advanced and stringent communications and safety systems, third party access to rail lines may be incompatible.696 The companies’ defence of Fortescue’s legal challenge to access part of their Pilbara railways is indicative of the importance to these companies of maintaining exclusive use.
The state’s engagement in, and attitude to, common-user infrastructure and third party access is identified by BHP Billiton as being ‘important in facilitating new private infrastructure investment’. BHP Billiton states that these issues affect whether the infrastructure provider has certainty over the future legal and regulatory regime under which it will operate its infrastructure.
691 Mr John Langoulant, Chief Executive, Chamber of Commerce and Industry Western Australia, Transcript of Evidence, 26 September 2007, pp 3-4. 692 Submission No. 18 from Department of Treasury and Finance, 21 May 2007, p13. 693 Government of Western Australia, Framework for the State Infrastructure Strategy Green Paper, September 2006, pp35. 694 Submission No. 4 from Water Corporation, 4 April 2007, p2. 695 Wilson, N., ‘Foreshore land in short supply for minerals exporting facilities’, The Australian, 3 December 2007, p32. See also Clarke, J., ‘Port combination harbours big savings’, Australian Financial Review, 12 November 2007, p19. 696 Mr Sid Hayes, Manager Rail Operations, Rio Tinto Iron Ore, Briefing, 31 July 2007.
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The inefficiencies and costs of coal export from Newcastle in the eastern states are highlighted as examples of what can happen when arrangements go awry.697
Whereas the state government appears to favour publicly funded common-user infrastructure, industry has a preference for BOO arrangements, although both sectors appreciate the value of a partnership approach and both acknowledge that there are different infrastructure funding models which can be applied to suit different circumstances. Industry also recognises that there are benefits from common-user and third party access arrangements. In assessing whether common- user infrastructure might be appropriate however, BHP Billiton argues that a cost-benefit analysis should be undertaken on a case-by-case basis where the potential infrastructure investments are large. Among other things, the analysis should take into account whether:
initial capital contributions can occur in a timely manner or whether this is contingent on likely time intensive third party funding arrangements;
operating cost arrangements are fair;
the third party will have veto rights over certain aspects, or whether veto rights can be used as commercial leverage on a non-related issue;
capacity expansions can be handled effectively; and whether
effective dispute resolution arrangements can be put in place.698
The container handling crane at the Esperance Port was cited by BHP Billiton as an example of where third-party access was justified by a cost-benefit analysis due to the wider benefits that could be anticipated for the region. In this instance, the company had established that the most suitable method for exporting product from the Ravensthorpe Nickel Mine would be via the Esperance Port, however the Port initially lacked the equipment to handle containers:
The proposition was written, during that time, to government that the farming sector may well, in time through cooperative growth and community capacity building, benefit from having a crane at that port. Here was, for example, not only a use by a nickel project development proponent, BHP Billiton, that could use a crane for containers but by the port authority having a crane generally, that in the period of 25 years whilst this crane is being used for containers, then other needs would come from the agricultural sector—exporting seeds and other products from this area of Western Australia, which puts out 10 per cent of the national grain import—10 per cent. Therefore, government held that to be a reasonable rationale; hence, the crane went in as a multi-user shore-based container handling crane, for not only what was actually seen as utility today, but also the opportunity of future end users.699
697 Submission No. 17 from BHP Billiton, 18 May 2007, p6. 698 Ibid. 699 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Transcript of Evidence, 2 April 2008, p8.
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In relation to social infrastructure, as discussed in previous Chapters, responsibilities are often less clearly defined. The Committee is aware that much privately funded infrastructure associated with resource projects is project-related and/or comprises economic infrastructure although this is not always the case. As discussed in Chapter 3.1, BHP Billiton for example has made voluntary contributions to the value of approximately $7 million to community building projects within the Shire of Ravensthorpe. Other examples of resource companies contributing towards social infrastructure have also been outlined in Chapter 5.4. While there may be an expectation for the private sector to contribute towards communities impacted by major infrastructure projects, the Committee considers that the private sector cannot and should not be expected to assume complete responsibility for all infrastructure. This has been pertinently conveyed by DoIR as follows:
Resource project proponents would (predominantly) finance the majority of their own project specific infrastructure development costs. However, there will be (continuing) instances where government will be called upon to fund (some of) the social or common user infrastructure needed to support a given resource project.700
From an industry perspective, this is also reflected in comments from APPEA:
Companies have traditionally sought to meet reasonable expectations and will continue to do so in the current phase of expansion, but believe they should be ‘topping-up’, rather than providing or renewing basic social infrastructure.701
A partnership approach to planning and developing community infrastructure has been highlighted by BHP Billiton, and the point is made that ‘some of the important issues in infrastructure planning can be addressed ahead of the final approvals for major resource projects’. Important factors to be considered in the implementation of community infrastructure are identified including:
a state government agency with the authority to manage and coordinate priorities across all agencies in a timely manner;
government commitment to community building to reduce potential social drift;
effective dispute resolution procedures; and
the participation of local government in the planning and implementation process.702
Particular areas requiring attention in the government’s delivery of infrastructure were also identified by BHP Billiton, including: improvements to community safety in areas of rapid development such as the construction of passing lanes; coordinating health, Royal Flying Doctor Services and medical services during the construction phase of major projects; and planning and
700 Submission No. 10 from Department of Industry and Resources, 20 April 2007, p8. 701 Submission No. 22 from Australian Petroleum Production and Exploration Association, 17 April 2008, p13. 702 Submission No. 17 from BHP Billiton, 18 May 2007, p8.
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delivering serviced industrial, commercial and residential land in order to meet demand in a timely way.703
Some of these factors have already been discussed in detail in previous Chapters. It is evident however, that in any partnership approach relating to the provision of infrastructure, a clear definition of responsibilities, consultation between all affected parties, and effective coordination are all critical to achieving a favourable outcome.
Finding 42
In any partnership approach between government and the private sector relating to the provision of infrastructure, a clear definition of responsibilities, consultation between all affected parties, and effective coordination are critical.
Resource companies overall appear keen to work with government and other agencies to improve social infrastructure in regional areas and support mechanisms to ensure all parties come to the table. Woodside for example, is involved with the Pilbara Industry’s Community Council (PICC), which as a model, is considered to engage federal and state governments and industry well in the identification of priority infrastructure and related programs in the region. As a relatively new entity however, outcomes are still being anticipated.704
The PICC was established in 2006 by the Chamber of Minerals and Energy and several foundation member companies, specifically: BHP Billiton Iron Ore; Chevron Australia Pty Ltd; Rio Tinto Iron Ore; NWSV; and Woodside Energy Ltd.705 According to the CME:
PICC works in collaboration with the Australian, Western Australian, Local Governments and Pilbara communities to address two specific and inter-related priority outcomes:
The development of a shared vision and strategy to increase Indigenous participation in employment in the Pilbara, including strategies to reduce gaps in education and training, health, and housing; and
Development of a shared vision and strategy in relation to the sustainability of Pilbara towns.706
As well as industry representation, PICC membership includes representatives of both federal and state governments. The federal government is represented by the Minister for Resources and
703 Ibid., p9 704 Mr Keith Spence, Executive Vice-President Enterprise Capability, Woodside Energy Ltd, Transcript of Evidence, 10 March 2008, p4. 705 Chamber of Minerals and Energy, ‘Pilbara Industry’s Community Council’, nd. Available at: www.cmewa.com.au/index.php?pid=357&PHPSESSID=8a681b466ac54d0ddc13ed5f82608447 Accessed on 30 April 2008. 706 Ibid.
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Energy, Hon. Martin Ferguson AM, MP; while state government representation includes the Treasurer, Hon. Eric Ripper, MLA. The four local government authorities which constitute the Pilbara region are also represented.707
Education, housing and health are currently priority areas for the PICC, and Woodside advised that some business cases are under development by state government public agencies in this regard.708 Woodside emphasised that the PICC has been a mechanism for government to align its priorities with industry but any reform initiatives have been driven by government:
They have not been scripted by industry. They have been developed by governments—state government public agencies. They have naturally, via the PICC, consulted with industry to confirm that state government agencies identify priorities reconciled with where industry understand there to be both strengths and gaps in the existing infrastructure systems. So what industry has done in the case of Woodside, where our principal area of focus is the broad Karratha region, we have provided feedback to the public agencies, as have other companies. I think it is important, though, to appreciate that the state government public agencies have developed these for Treasury’s and ultimately cabinet’s review and endorsement; they have not been scripted by industry.709
Woodside identified a particular benefit of the PICC arrangement to be its engagement of various major stakeholders in the Pilbara region. BHP Billiton emphasised the advantage of the PICC’s regional approach to planning and coordination. The PICC enables a state-wide ‘vision’ to be translated into a regional context via the PICC, and then for this information to be fed into plans by individual companies. According to BHP Billiton,
…because we have regions in this state that have these aspirational 50 to 100 [year] type growth envelopes of staying power, we can perhaps look at it on a regional basis rather than on a company-by-company basis. Consequently, this company and its peers sit together with government.710
In terms of other private sector initiatives, INPEX Browse Ltd, like many other resource companies, is aware of the impact of its activities on local communities, and has adopted a consultative approach to address this impact:
We have undertaken a number of socio-economic impact modelling studies which look at all sorts of parameters … We then started to liaise with the state government and the shires regarding the key issues which appear to emerge in the Kimberley but that appear to be everywhere these days, which is housing: there is not enough and what there is, is too expensive. There are not enough schools and there are not enough police … The company has been very careful to understand the boundary between the services and management
707 Mr Keith Spence, Executive Vice-President Enterprise Capability, Woodside Energy Ltd, Transcript of Evidence, 10 March 2008, p5. 708 Ibid., pp4-5. 709 Ms Sasha Pendal, Manager Government Affairs, Woodside Energy Ltd, Transcript of Evidence, 10 March 2008, p5. 710 Mr Ford Murray, Manager - Government Relations & Communications, BHP Billiton, Transcript of Evidence, 2 April 2008, p3.
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provided by government and those that would normally be expected to be provided by a large company such as this, in a rural location, particularly by a company which is fairly much on the front foot when it comes to corporate social responsibility.711
Similarly, Rio Tinto is conscious of the impacts of mining operations on local communities and has a communities policy, which requires Baseline Community Assessments to be undertaken. These assessments examine demography and family and individual well being, and are intended to identify among other things, the potential risks and opportunities to communities arising from the company’s business activities.712 Rio Tinto Iron Ore has recently completed a Baseline Community Assessment of affected towns in the Pilbara, which has identified social infrastructure limitations to be a significant issue, particularly in the areas of health, and education and childcare services. Rio Tinto Iron Ore intends to work together with officials and local government to determine a way forward to address these issues and is also working together with the PICC.713
711 Mr Sean Kildare, General Manager External Affairs, INPEX Browse Ltd, Transcript of Evidence, 10 March 2008, pp6-7. 712 Rio Tinto, ‘Community relations standard’, 5 September 2007. Available at: www.riotinto.com/documents/Library/Communities_standard_300108.pdf Accessed on 1 April 2008. 713 Mr Warwick Smith, Managing Director Expansion Projects, Rio Tinto Iron Ore, Transcript of Evidence, 25 February 2008, p9 and supplementary information provided at hearing, p15.
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APPENDIX ONE
BRIEFINGS HELD
Date Name Position Organisation
18/10/06 Professor Greg Craven Deputy Vice Curtin University of Chancellor Technology
30/07/07 Mr Allan Moles Chief Executive Shire of Roebourne Officer
Mr John Verbeek Senior Project Officer Pilbara Development Commission
Mr Peter Hinchcliffe Executive Member Pilbara Area Consultative Committee
Mr Gary Slee Treasurer Pilbara Area Consultative Committee
31/07/07 Mr Warwick Smith Managing Director Rio Tinto Iron Ore Expansion Projects
Mr Sid Hayes Manager Railway Rio Tinto Iron Ore Operations
Mr Nick Serle Manager Marine Rio Tinto Iron Ore Operations
Mr Hemant Deshmukh General Manager Burrup Fertilisers Pty Ltd Karratha Operations
Mr Wolfgang Jovanovic Director - Corporate Burrup Fertilisers Pty Ltd
Mr Robert Fisher Manager - Burrup Fertilisers Pty Ltd Government Liaison
1/08/07 Ms Amanda Lorrimar Senior Corporate Woodside Energy Ltd Affairs Adviser
Ms Naomi Evans Community Affairs Woodside Energy Ltd Coordinator Pluto
Mr Steve Lewis Chief Executive Dampier Port Authority Officer
2/08/07 Mr Stuart Taylor Chief Executive Shire of Ravensthorpe Officer
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Date Name Position Organisation
Mr Roy Winslow Manager Planning Shire of Ravensthorpe and Development
Mr Michael Archer Chief Executive Shire of Esperance Officer
Cr Ian Mickel Shire President Shire of Esperance
Mr Doug Pearson Executive Manager Shire of Esperance Engineering Services
Mr Kevin Fernance Finance Manager Esperance Port Authority
Mr Ray Ciantar Manager Goldfields Esperance Infrastructure and Development Commission Planning
Mr Shayne Flanagan Manager Southern Goldfields Esperance Region Development Commission
3/08/07 Mr Ford Murray Manager - BHP Billiton Ltd Government Relations & Communications
27/02/08 Hon. Gary Gray AO, MP Parliamentary Commonwealth Secretary for Government Regional Development and Northern Australia
5/03/08 Mr Mark Girard Chief Executive LG Infrastructure Services
Mr David Jay Chair LG Infrastructure Services
Mr Colin Jensen Coordinator General Queensland Department of and Director General Infrastructure and Planning
Mr Michael Walsh Deputy Director Queensland Department of General Governance Infrastructure and Planning and Strategy
Mr Lindsay Enright Assistant Coordinator Office of Urban General Management, Queensland Department of Infrastructure and Planning
Ms Laura Doughty Executive Director Queensland Department of Program Infrastructure and Planning Management Office
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Date Name Position Organisation
Mr Tim Spencer Deputy Under Queensland Treasury Treasurer
10/03/08 Ms Daphne Gollogly Manager Finance Port Hedland Port and Administration Authority
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APPENDIX TWO
WITNESSES TO HEARINGS HELD
Date Name Position Organisation
26/09/07 Mr John Langoulant Chief Executive Chamber of Commerce and Industry
Mr Nathan Taylor Senior Economist Chamber of Commerce and Industry
Mr David Parker Director Chamber of Minerals and Energy
Ms Carolyn Roberts Project Officer Chamber of Minerals and Energy
15/10/07 Mr Michael Court Director, Asset Planning Department of Treasury and Management, and Finance Department of Treasury and Finance
Mr Anthony Kannis Executive Director, Department of Treasury Agency Resources and Finance
Mr Mark Altus Director, Revenue and Department of Treasury Intergovernmental and Finance Relations
Mr Bill Phillips Director Office of Development Approvals Coordination, Department of the Premier and Cabinet
Mr David Hatt Chief Policy Adviser Department of the Premier and Cabinet
Mr Daniel Smith Deputy Chief Policy Department of the Advisor Premier and Cabinet
Mr Donald Weaver Director of Strategies Department of Local and Legislation Government and Regional Development
Mr Geoff Comben Manager, Financial Department of Local Assistance Government and Regional Development
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Date Name Position Organisation
15/10/07 (cont.) Dr Chris Berry Manager, Regional Department of Local Policy Unit Government and Regional Development
Mr Jeremy Dawkins Chairman Western Australian Planning Commission
24/10/07 Cr Bill Mitchell President Western Australian Local Government
Association
Ms Ricky Burges CEO Western Australian Local Government Association
Mr Ian Duncan Economist Western Australian Local Government Association
14/11/07 Mr Eric Lumsden Director General Department for Planning and Infrastructure
Ms Dorte Ekelund Deputy Director General Department for Planning and Infrastructure
Mr John Fischer Executive Director Department for Planning Transport Industry and Infrastructure Policy
Mr Athol Jamieson Assistant Director Department for Planning General Operations and Infrastructure
Mr Martin Richardson Executive Director Department for Planning Urban Policy and Infrastructure
21/11/07 Mr Peter Kiossev General Manager, Department of Industry Infrastructure Policy and Resources
Mr Joe Lunghitano Principal Policy Officer, Department of Industry Department of Industry and Resources and Resources
Mr Colin Slattery Acting Assistant Director Department of Industry General and Resources
10/03/08 Mr Julian Tapp Head of Government Fortescue Metals Group Relations Ltd
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Date Name Position Organisation
10/03/08 (cont.) Mr Keith Spence Executive Vice Woodside Energy Ltd President, Enterprise Capability
Mr Niegel Grazia Vice President Woodside Energy Ltd Government Affairs
Ms Sasha Pendal Manager, Government Woodside Energy Ltd Relations
Mr Sean Kildare General Manager INPEX Browse Ltd External Affairs
12/03/08 Ms Dorte Ekelund Deputy Director General Department for Planning and Infrastructure
Mr John Fischer Executive Director Department for Planning Transport Industry and Infrastructure Policy
Mr Martin Richardson Executive Director Department for Planning Transport Industry and Infrastructure Policy
19/03/08 Hon. Fred Riebeling, Member for North West Parliament of Western MLA Coastal Australia
2/04/08 Mr Ford Murray Manager Government BHP Billiton Ltd Relations & Communications
9/04/08 Cr Bill Mitchell President Western Australian Local Government Association
Mr Ian Duncan Economist Western Australian Local Government Association
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APPENDIX THREE
SUBMISSIONS RECEIVED
Date Name Position Organisation
28/03/07 Mr Ian Taylor Chair Regional Development Council
29/03/07 Mr Ron Yuryevich Chairman Goldfields Esperance Area Consultative Committee
4/04/07 Mr Neil Smithson Managing Director Smithson Planning
4/04/07 Dr Jim Gill Chief Executive Officer Water Corporation
16/04/07 Mr Peter Evans
16/04/07 Mr Bruce Manning Chief Executive Officer Great Southern Development Commission
17/04/07 Mr Don Punch Chief Executive Officer South West Development Commission
18/04/07 Mr Charles Jenkinson Executive Officer Mid West Gascoyne Area Consultative Committee
19/04/07 Mr Nathan Taylor Economist Western Australian Local Government Association
20/04/07 Mr Malcolm Peacock Chief Financial Officer Western Power
20/04/07 Mr Stuart Smith A/Director General Department of Industry and Resources
20/04/07 Mr Robert Hicks Chief Executive Officer Goldfields Esperance Development Commission
26/04/07 Mr Steve Douglas Chief Executive Officer Mid West Development Commission
27/04/07 Ms Maree De Lacey Chief Executive Officer Peel Development Commission
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Date Name Position Organisation
2/05/07 Mr Tim Shanahan Chief Executive Chamber of Minerals and Energy Western Australia
11/05/07 Mr Greg Martin Director General Department for Planning and Infrastructure
18/05/07 Mr Ian Fletcher Vice President BHP Billiton Limited Government Relations, Western Australia
21/05/07 Mr Tim Marney Under Treasurer Department of Treasury and Finance
29/05/07 Ms Deidre Willmott Executive Director, Chamber of Commerce Policy and Industry Western Australia
2/08/07 Mr Stuart Taylor Chief Executive Officer Shire of Ravensthorpe
2/08/07 Cr Ian Mickel Shire President Shire of Esperance
17/04/08 Ms Belinda Robinson Chief Executive Australian Petroleum Production and Exploration Association Limited
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APPENDIX FOUR
LEGISLATION
Legislation State (or Country)
Barrow Island Act 2003 Western Australia
Environment Protection and Biodiversity Commonwealth Conservation Act 1999
Environmental Protection Act 1986 Western Australia
Income Tax Assessment Act 1997 Commonwealth
Integrated Planning Act 1997 Queensland
Iron Ore (FMG Chichester Pty Ltd) Agreement Act Western Australia 2006
Land Administration Act 1997 Western Australia
Local Government (Financial Assistance) Act Commonwealth 1995
Local Government Act 1995 Western Australia
Mining Act 1978 Western Australia
Mining Regulations 1981 Western Australia
North West Gas Development (Woodside) Western Australia Agreement Act 1979
Offshore Petroleum (Royalty) Act 2006 Commonwealth
Petroleum (Submerged Lands) (Royalty) Act 1967 Commonwealth
Petroleum (Submerged Lands) Act 1967 Commonwealth
Planning and Development Act 2005 Western Australia
Public Service Act 1996 Queensland
Railway and Port (The Pilbara Infrastructure Pty Western Australia Ltd) Agreement Act 2004
Seas and Submerged Lands Act 1973 Commonwealth
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Legislation State (or Country)
State Development and Public Works Queensland Organisation Act 1971
Trade Practices Act 1974 Commonwealth
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APPENDIX FIVE
INFRASTRUCTURE-RELATED COMMITTEES LISTED BY THE DEPARTMENT FOR PLANNING AND INFRASTRUCTURE
WAPC Committees714
Statutory Planning Committee
The committee is the WAPC’s regulatory decision-making body. Its functions include approval of the subdivision of land, approval of leases and licences, approval of strata schemes, advice to the Minister for Planning and Infrastructure on local government town planning schemes and scheme amendments, and the determination of certain development applications under the Metropolitan Region Scheme.
Executive, Finance and Property Committee
The committee performs the administrative, financial and property functions of the WAPC. Most of its activities centre on monitoring development projects, the acquisition and disposal of property, and associated capital works.
Metropolitan Region Planning Committee
The committee is the vehicle for liaison between State and local government when considering amendments to the Metropolitan Region Scheme. It receives minutes of all district planning committee meetings, reviews technical reports and reports on submissions to amendments, and appoints hearings committees for amendments.
Sustainable Transport Committee
The committee advises the WAPC on transport planning throughout the State. It has decision- making powers in relation to transport matters in the Perth Metropolitan Region and on strategic issues across the State.
Coastal Planning and Coordination Council
The council provides high-level strategic and integrated advice on the sustainable and coordinated planning and management of the Western Australian coast.
714 Western Australian Planning Commission, ‘Statutory Committees’, nd. Available at: www.wapc.wa.gov.au/About+us/Statutory+committees/default.aspx Accessed on 18 December 2007.
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Infrastructure Coordinating Committee715
The Committee advises the WAPC on planning for the provision of physical and community infrastructure throughout the State. It has the powers to coordinate the metropolitan development program, the country land development program, and the provision of infrastructure for land development.
Membership716:
Mr Jeremy Dawkins (Chair) Mr Eric Lumsden Chairman, WAPC Department for Planning and Infrastructure
Mr Rolando Custodio Mr Gary Norwell Office of Energy Main Roads WA
Mr John Ruprecht Mr Malcolm Parr Department of Water Department of Education
Mr Glen Buckley Mr Stuart Smith Department of Housing and Works Department of Industry and Resources
Mr Steve Hiller Cr Elizabeth Taylor Water Corporation local government representative
Mr Ross Holt Mr Mark Jeffries LandCorp Department of Environment and Conservation
Mr Ross Keesing Mr Michael Court Department of Health Department of Treasury and Finance
Department of Industry and Resources Infrastructure Related Committees
Approvals Review Team (ART) – Operating out of the Department of Industry and Resources' Investment Services Group, ART works closely with approvals agencies to translate the guiding principles put forward in the Keating Review into policy papers detailed implementation plans.
Standing Inter-Agency Committee of Chief Executive Officers (SIAC) – SIAC was established by the Department of Industry and Resources (DoIR) to facilitate government approvals and other decisions for major resource and resource processing projects. SIAC has taken on the role of coordinating and consolidating government agencies' advice on Keating Review recommendations and issues to the MSC.
715 Submission No. 16 from Department for Planning and Infrastructure, 11 May 2007, p10. 716 Western Australian Planning Commission, ‘Infrastructure Coordinating Committee’, nd. Available at: www.wapc.wa.gov.au/About+us/Statutory+committees/statutory+committees+membership/1286.aspx Accessed on 6 May 2008.
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Ministerial Steering Committee (MSC) – The Keating Review is being overseen by MSC which is chaired by the Minister for State Development, and includes the Deputy Premier as Minister responsible for native title; and the respective Ministers for the Environment; Planning and Infrastructure; Indigenous Affairs; and Local Government and Regional Development.
As required, and taking into account advice provided by government agencies through the SIAC, the MSC will meet to consider and provide direction on issues associated with the implementation of the Keating Review recommendations.
Inter-Agency Implementation Group (IAIG) – The role of IAIG is to implement within the respective agencies the approvals reforms that have been endorsed by Government. The group meets regularly to strategise and discuss issues related to implementation.
Integrated Project Approvals System (IPAS) – An initiative of the Review was the development of IPAS, which has been operational since October 2004. IPAS is designed to provide proponents with a more coordinated approvals system and more certainty. IPAS provides overall approvals coordination for complex projects and ensures that straightforward projects are managed according to the set timelines. IPAS is run within DPI.
Office of Development Approvals Coordination (ODAC)717 – Established on 31 October 2005, ODAC (replacing the Project Approvals Coordination Unit - PACU), is responsible for the coordination of complex, ‘whole-of-government’ project scoping activities, and monitoring of timelines and other responsibilities across Government for all projects undertaking approvals within the State Development portfolio. A Development Approvals Coordinator has been appointed to ensure that timelines are maintained across Government.
717 It should be noted that ODAC is located within the Department of the Premier and Cabinet.
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APPENDIX SIX
DEPARTMENT OF TREASURY AND FINANCE SUBMISSION718
718 Submission No. 18 from Department of Treasury and Finance, 21 May 2007, pp1-14.
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APPENDIX SEVEN
THE ENVIRONMENTAL IMPACT STATEMENT (EIS) PROCESS IN QUEENSLAND719
719 Queensland Government, Department of Infrastructure and Planning, ‘Environmental Impact Statement Process’, nd. Available at: www.dip.qld.gov.au/processes-frameworks/significant-projects-and-environmental-impact-statement- process.html Accessed on 6 May 2008.
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