Tasmanian Government Five-Yearly Infrastructure Report

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Tasmanian Government

Five-Yearly Infrastructure Report

January 2007

Table of Contents 1. Introduction ...... 5 1.1. Tasmania’s Demographic Trends ...... 5 1.1.1. Population Trends 5 1.1.2. Projected Demographic Changes 6 1.1.3. Population Distribution 7 1.1.4. Summary of Key Issues 8 1.2. Economic Analysis ...... 8 1.2.1. Economic Overview 8 1.2.2. Outlook for Economic Growth 10 1.2.3. Recent Investment Trends 11 1.2.4. Industry Structure 13 1.2.5. Exports and Imports 14 1.3. Key Demand Drivers for Tasmania ...... 16 1.4. State Governance...... 16 1.4.1. Regulatory Framework 16 1.4.2. Local Councils and Regions 18 1.4.3. Planning Reforms 19 2. Transport...... 20 2.1. Sector Overview...... 20 2.2. Road ...... 23 2.2.1. Supply 23 2.2.2. Demand 24 2.2.3. Performance 27 2.2.4. Investment 28 2.2.5. Policy, Planning and Regulation 29 2.2.6. Conclusions, Key Issues and Challenges 33 2.3. Rail...... 34 2.3.1. Supply 34 2.3.2. Demand 35 2.3.3. Performance 36 2.3.4. Investment 36 2.3.5. Policy, Planning and Regulation 37 2.3.6. Conclusions, Key Issues and Challenges 38 2.4. Ports and Intermodal Facilities ...... 40 2.4.1. Supply 40

2.4.2. Demand 41 2.4.3. Performance 44 2.4.4. Investment 45 2.4.5. Policy, Planning and Regulation 45 2.4.6. Conclusions, Key Issues and Challenges 46 2.5. Airports ...... 47 2.5.1. Supply 47 2.5.2. Demand 47 2.5.3. Performance 49 2.5.4. Investment 50 2.5.5. Policy, Planning and Regulation 51 2.5.6. Conclusions, Key Issues and Challenges 51 3. Energy...... 52 3.1. Electricity...... 52 3.1.1. Supply 52 3.1.2. Demand 56 3.1.3. Performance 58 3.1.4. Investment 63 3.1.5. Policy, Planning and Regulation 65 3.1.6. Conclusions, Key Issues and Challenges 70 3.2. Natural Gas...... 72 3.2.1. Supply 72 3.2.2. Demand 72 3.2.3. Performance 74 3.2.4. Investment 76 3.2.5. Policy, Planning and Regulation 76 3.2.6. Conclusion, Key Issues and Challenges 77 4. Water ...... 79 4.1. Sector Overview...... 79 4.1.1. Supply 79 4.1.2. Demand 81 4.1.3. Performance 82 4.1.4. Investment 83 4.1.5. Policy, Planning and Regulation 85 4.1.6. Conclusions, Key Issues and Challenges 86 5. Telecommunications...... 88

5.1. Sector Overview...... 88 5.1.1. Supply 88 5.1.2. Demand 90 5.1.3. Performance 90 5.1.4. Investment 91 5.1.5. Policy, Planning and Regulation 92 5.1.6. Conclusions, Key Issues and Challenges 93

1. Introduction 1.1. Tasmania’s Demographic Trends 1.1.1. Population Trends As at 30 June 2006, Tasmania’s population comprised 488,948 persons or 2.4 per cent of the total Australian population. In the year to June 2006, Tasmania’s population grew by 3 458 persons or 0.71 per cent. After a four-year period of population decline in the late 1990s, Tasmania’s population returned to growth in early 2001 and recorded its sixth consecutive year of population growth in 2005-06 Population growth in states and territories are influenced by three components: natural increase (number of births), net interstate migration, and net overseas migration. Tasmania has traditionally experienced high rates of interstate out-migration, especially of those in the 20-34 age group, which is the prime child-rearing age group. However, this trend has changed in recent years and a key factor in Tasmania’s recent return to population growth has been an increase in interstate in-migration. Tasmania’s positive population growth can be attributed to all three components as illustrated in Table 1.

Table 1: Estimated Resident Population, Components of Change, Tasmania - As at 30 June 20061 Year Natural Net Interstate Net Overseas At end of Change from Increase Migration Migration Period Previous Year 2000-01 2,047 -2,136 101 471,581 32 2001-02 2,022 -1,512 307 472,285 704 2002-03 1,784 1,895 1,014 475,334 3,049 2003-04 1,756 2,475 700 480,760 5,426 2004-05 2,208 187 1,045 484,498 3,738 2005-06 2,520 60 692 487,956 3,458

Despite having the highest fertility rate in Australia (Tasmania reached replacement rate of 2.1 babies per woman in 2005, whereas the national average is 1.8 births per woman), Tasmania is also ageing at a faster rate than any other Australian jurisdiction. This is the main emerging demographic issue for the State and will present significant issues in terms of demographic shift, service provision and employment. The changing size and distribution of Tasmania’s population will also have implications on infrastructure development and maintenance into the future.

1 Australian Bureau of Statistics, Cat No 3101.0

1.1.2. Projected Demographic Changes Changes in Tasmania’s population size and composition will impact on the State’s economic growth, the demand for some Government services and infrastructure and the Government’s revenue raising capacity. Demographic change is a more urgent issue for Tasmania than for other states and territories as Tasmania is ageing more rapidly than any other jurisdiction and is expected to have the oldest population age structure within two years. A key feature of ABS population projections is that Tasmania will have the slowest growing and fastest ageing population of all Australian jurisdictions. In particular, the ageing of Tasmania’s population occurs under all projections and therefore can be considered a certain outcome over the next few decades, regardless of whether total population is increasing or declining. Tasmania’s age structure is therefore projected to progressively move toward one in which the proportion of the population in older age groups is higher than those in younger age groups. Under most of the ABS population projection scenarios, Tasmania’s population is also projected to grow for at least 20 years. Under one set of ABS population projections2, Tasmania’s population grows for the next 20 years, before gradually declining to be at a level in 2046 that is similar to Tasmania’s population in 1991 (around 467,000).

2 This ABS projection has assumptions that reflect recent past trends. It assumes an average fertility of 1.7 (that is, females on average give birth to 1.7 live children over their lifetime), declining improvement in life expectancy from 2010-11, and a net gain of 550 persons from overseas migration and a net loss of 1,000 persons through interstate migration each year.

1.1.3. Population Distribution Tasmania’s population is largely distributed in three main regions: the south around the capital Hobart (population 239,438), the north-east centred on Launceston (137,900), and the north-west in Devonport and Burnie (107,900). Tasmania has the most dispersed population of any Australian State or Territory, with just less that 60 percent of the population living outside the capital city. In the period between 1991 and 2001, Tasmania experienced population decline in rural and regional areas (see Map 1). The population growth that has subsequently occurred around Tasmania’s major urban areas (Hobart and Launceston) has tended to be concentrated in the outer suburbs and fringe areas. Between 1991 and 2001, the Net decrease No change population of Hobart’s outer Net increase

suburbs and fringe areas increased by 9.1 per cent, while Map 1: Population change 1991 to 2001 the population of the inner urban area declined by 1.5 per cent. In Launceston, the population of the outer suburbs and fringe areas increased by 6.9 per cent, while the population of the inner urban area increased by only 1.1 per cent. This ‘urban sprawl’ has been facilitated by the dominance of the private car ownership, as well as the provision of road infrastructure. The trend towards low density suburban residential developments, which are largely separate from commercial centres, has implications for the provision of infrastructure. As sprawl occurs, the cost of providing infrastructure and other services to these areas increases, as does the expectation that these services will be provided. In addition, average travel distances and dependence on private vehicles increase. The age structure of the population varies between Tasmanian regions and Local Government Areas and has been changing over time. This has, and will continue to have, implications for service delivery and infrastructure planning across the State. While changes in the proportion of people in certain age groups have important implications for a region, this is less important than changes in the absolute number of people in certain age groups, particularly those above and below the working age. The combined effects of changes in population size and in the age structure in Tasmania’s regions can result in very large changes in the spatial allocation of government services and the location of new infrastructure across Tasmania. Projections show that the Greater Hobart-southern and northern regions are likely to experience relatively strong growth over the next couple of decades, which is evident in

current trends. Greater Hobart is predicted to grow by around 14,900 persons by 2022, with the rural Southern area projected to grow by around 2,400 persons. Greater Launceston is projected to grow by around 10,600 persons, while the population of the northern rural area is projected to grow by less than 500 persons. In contrast, the population of the Mersey-Lyell region is projected to decline by around 4,200 persons by 2022, with the urban Burnie-Devonport area declining by around 1,600 persons and the population of the remainder declining by around 2,600 persons. 1.1.4. Summary of Key Issues Tasmania’s population is ageing more rapidly than any other jurisdiction and is expected to soon have the oldest population structure. Demographic change, and in particular ageing, will have a suite of impacts including a significant increase in the proportion of households comprising elderly persons, a reduction in household size and an increase in the proportion of households that rely on superannuation-related income. Demographic change is also likely to influence population settlement, which has implications for the delivery of government services, the demand for housing and for public and private transport options. Tasmania’s population is currently growing in urban and urban fringe areas and decreasing in rural areas. This trend is likely to continue into the future. 1.2. Economic Analysis 1.2.1. Economic Overview Tasmania continues to experience its best economic conditions in decades. Tasmania's economic performance in recent years has been characterised by: − sustained jobs growth in all regions of the State; − a substantial reduction in unemployment, and in the number of long-term unemployed persons; − strong private sector investment, reflecting high levels of business confidence; − continued growth in consumer spending due, in part, to increases in household wealth; − population growth; and − a buoyant construction industry, arising from growth in dwelling investment and major infrastructure projects. Gross State Product (GSP) measures the value added of goods and services produced in each state and territory, and is the local equivalent of Australia's Gross Domestic Product (GDP). It is designed to be the principal indicator of economic performance and is the measure used by most economic commentators, ratings agencies and the media. Annual GSP estimates are released by the Australian Bureau of Statistics (ABS) in November of each year. The ABS describes these estimates as experimental. The Tasmanian Department of Treasury and Finance (Treasury) urges caution in the use of GSP data for Tasmania issued by the ABS when comparing economic performance from year to year. State GSP data, especially for a small economy such as Tasmania, tend to be quite volatile and are often subject to substantial revision. However, it is likely that the longer term trends in economic performance are adequately reflected in GSP data. The Australian Bureau of Statistics reported that Tasmanian GSP grew by 3.1 per cent in real terms in 2005-06. This is the third year in the past five years that growth in

Tasmania’s GSP has outperformed growth in GDP nationally. In the past five years, Tasmania's estimated average annual growth rate has been 3.7 per cent, compared with the equivalent Australian figure of 3.3 per cent (Figure 1).

Tasmania Australia

6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0

Annual growth rate (%) rate growth Annual -2.0 -3.0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Figure 1: Gross State/Domestic Product: Tasmania and Australia3

The linkages between Tasmania and the national economy have never been stronger. There is now energy trade in both natural gas and electricity between the mainland and Tasmania, and Basslink also provides an optic fibre link to the mainland to promote competition and innovation in telecommunication services. Tourism continues to be encouraged by the competition between two budget airlines, Virgin Blue and Jetstar. Finally, the tourism and freight transport sectors have benefited from the freight capacity across Bass Strait provided by the Spirit of Tasmania ferries. The experience over the past year has confirmed that the underlying momentum in the Tasmania economy remains strong and that the performance of most key indicators is again expected to be comparable to national averages.

3 Australian National Accounts: State National Accounts, ABS Cat No 5220.0

1.2.2. Outlook for Economic Growth Figure 2 outlines the estimates for key economic indicators for Tasmania for the current financial year and forecasts for 2006-07 from Treasury, prepared for the 2006-07 State Budget which was handed down in June 2006. The forecasts show that economic growth for 2006-07 is expected to remain above trend, be supported by a favourable world economy, and continued growth in business investment and employment. The forecasts for 2006-07 do not take into account the economic impact of the proposed pulp mill at Longreach, as construction on this project (if approved) is not scheduled to commence until 2007-08. The investment value of the proposed pulp mill has been estimated at around $1.4 billion and is expected to create thousands of direct and indirect jobs. Over 2006-07, it is expected that there will be: − continued economic growth, driven by investment, consumption, spending and growth in the value of exports; − further growth in employment; − major projects, including those undertaken by State Government businesses, that will benefit the Tasmanian economy, both directly and indirectly; − favourable monetary conditions, with low and stable inflation and relatively low nominal and real interest rates; and − an expanding export sector due to favourable national and global economic conditions.

Figure 2: Tasmanian Economic Aggregates and Forecasts4

4 Tasmanian Government 2006-07 Budget Paper 1, Chapter 2 Tasmanian Economy

1.2.3. Recent Investment Trends A key feature of the Tasmanian economy over the past five years has been the very high growth in investment. Private Sector Private sector investment (incorporating business and dwellings investment), also known as private gross fixed capital formation (PGFCF), has recovered since 1998, and reached its highest level on record in the March quarter 2006. There has been some easing in private investment in recent quarters Private investment grew by 0.9 per cent in the year to September 2006 and has grown at an average annual rate of 14.5 per cent since 2000-01. This investment growth explains part of the employment growth since April 2002. In 2005-06, private investment as a proportion of GSP was 23.3 per cent for Tasmania, which is the largest proportion since the series commenced in 1989-90. However, this remains below the equivalent share of 23.2 per cent for Australia in 2005-06. This growth reflects improved investment opportunities in Tasmania, together with an increased capacity of businesses in Tasmania to fund investment projects as a result of improved profitability and low interest rates over most of this period. Major investment projects include the Tasmanian Natural Gas Project and Basslink5, and several tourism- related projects. Investment in the mining and minerals processing industries has also increased sharply in recent years: one recent example is the Avebury nickel mine being developed by Allegiance Mining. Figure 3 below shows that private investment has been more volatile in Tasmania than nationally over the past five years. This is due to the small size of the State and the timing of a small number of large investment projects, particularly energy-related projects.

200 190 Tasmania 180 Australia 170 160 150 140 130

June 2000 = 100 120

(real prices, trend series) 110 100 90 80 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06

Figure 3: Private Sector Investment – Tasmania and Australia6

5 However, both the Tasmanian Natural Gas Project and Basslink have a significant public sector investment component. 6 Australian National Accounts: National Income, Expenditure and Product, ABS Cat No 5206.0 Deleted: .

Public Sector Investment In 2005-06, public sector investment totalled $925 million. Figure 4 shows the trend in public sector investment since the June quarter 2000. Public sector investment has been volatile over the past five years in Tasmania, but has experienced underlying growth at a greater rate than nationally, increasing by an average of 11.8 per cent per annum over the past six years. For 2005-06, public sector investment in Tasmania as a proportion of GSP was 5.6 per cent, significantly higher than 4.0 per cent nationally.

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130 Index: June 2000 = 100 (real prices, trend series) 110 Tasmania Australia 90

70 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06

Figure 4: Public Sector Investment – Tasmania and Australia7

Several major infrastructure projects, for example the redevelopment of the Risdon Prison, are underway, or have recently been completed in Tasmania. Some of these projects account for a significant proportion of the recent growth in private investment. Other infrastructure projects are being undertaken by Tasmania's Government Business Enterprises and State-owned Companies. These government businesses, which provide significant financial returns to the State, directly provide some of the State's most important economic infrastructure. The strategic direction and investments of these businesses also promote private sector investment and assist in the economic development of the State. Within the energy sector, two nationally significant energy infrastructure projects, namely Basslink and the Tasmanian Natural Gas Project, have diversified the State's energy sector, introducing competition in energy markets and enhancing Tasmania's business environment (see Chapter 3). The Telecommunications Infrastructure Project will result in a more competitive telecommunications industry structure within Tasmania, encouraging new investment in broadband telecommunication facilities within Tasmania, and creating an environment conducive to content and application providers of innovative and value added services (see Chapter 5).

7 Australian National Accounts: National Income, Expenditure and Product, ABS Cat No 5206.0

Forestry Tasmania plays a central role in Tasmania's forest and forest product industry, which contributes about $1 billion each year to the Tasmanian economy. As custodian and manager of over 40 per cent of the State's forests, Forestry Tasmania is well placed to facilitate the development of value-adding activities within the State. Current developments include the Southwood project and the ongoing development of tourism infrastructure with the Tahune Airwalk, the Dismal Swamp Maze and the Forest EcoCentre. 1.2.4. Industry Structure Tasmania's economy is small and open, with an industry structure that is broadly similar to that of Australia as a whole. The primary sector is more important in Tasmania than nationally and accounts, directly or indirectly, for most of Tasmania's exports. The contribution of the manufacturing sector is similar to that nationally, though the range of industries within that sector is not as broad. About one half of Tasmania's total production is distributed to the local market, with around 30 per cent being exported to mainland Australia and the remaining 20 per cent being exported overseas. Demand for about one half of Tasmania's goods and services is therefore affected by changes in global and national economic conditions. Movements in exchange rates and world commodity prices, in particular, can have a significant influence on the value of Tasmania's overseas exports and output. Tasmania is dependent on certain key industries that make significant contributions to economic activity in the State. In particular, manufacturing contributed 14 per cent to a total factor income in 2005-06, which along with Victoria is the equal highest proportion in the country. Table 2 illustrates the proportion of total factor income that each broad industry sector contributes for Tasmania (and Australia for the purposes of comparison). Many of Tasmania’s manufacturing industries are highly dependent on the State’s resource base. These primarily consist of forestry and mineral resource inputs, but also of some partly transformed inputs such as pulp for paper manufacturing. In most cases, the bulk product is exported, emphasising the importance of ports to the State’s economy. The major manufacturing industries rely on this infrastructure base and also on the effective intermodal integration of ports, roads and rail.

Table 2: Contribution to total factor income by major industry sectors, 2005/068 Industry Sector Tasmania (%) Australia (%) Manufacturing 14 11 Health & community services 10 7 Retail trade 8 6 Agriculture, forestry & fishing 7 3 Ownership of dwellings 7 8 Finance & insurance 6 8 Property & business services 6 13 Electricity, gas & water supply 5 2 Construction 5 7 Government administration & defence 5 4 All other industries 27 31 Total 100 100

1.2.5. Exports and Imports Exports to both interstate and overseas markets are a significant contributor to Tasmania's overall economic performance. The real volume of Tasmania's overseas exports has fluctuated since 2000. Figure 5 shows trends in Tasmanian and national overseas exports over the past five years, and reveals underlying growth in the volume of Tasmania's exports. Figure 5 shows that Tasmanian export volumes have been more volatile than national exports over the period. Part of the volatility of export sales is due to the very high value of each unit produced by the State’s shipbuilding industry and sold overseas.

Deleted: c 8 Source: ABS, Australian National Accounts: State Accounts, Cat No. 5220.0 Deleted: n

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(real prices, trend) 95 Index: June 2000 = 100 June Index:

Tasmania 90 Australia

85 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06

Figure 5: Real International Merchandise Exports – Tasmania and Australia9 In the year to October 2006, the nominal value of Tasmanian overseas exports was $3 189 million, up 17.2 per cent from the level in the year to October 2005. In comparison, the value of national exports increased by 20.7 per cent over the same period. In recent years, Tasmania has benefited from favourable terms of trade as the prices received for the State's exports have increased more significantly than the prices paid for the State's imports. It is likely that the rapidly expanding Chinese economy has played a major role in this outcome for Tasmania. Demand from China has caused a global rise in the price of mineral commodities, which account for around 40 per cent of the value of Tasmania's overseas exports. Favourable price movements have also been experienced for Tasmania's imports, due to the low prices of many goods manufactured in China, such as computers and other electronic equipment. The favourable movement in Tasmania's terms of trade means that Tasmanian real incomes have been growing by more than the growth in volume-based indicators, such as GSP. In 2003, the Tasmanian Government conducted a Freight Demanders Survey (FDS), which provided an overview of Tasmania’s total commodity trade interstate and overseas. The estimates in the FDS are based on the land transport task within Tasmania that is destined for, or derived from, a seafreight leg.10 The FDS figures indicate that in 2003, Tasmania’s combined import and export trade was valued at $7,426 million with a total mass of 14.8 million tonnes. If exports of iron ore from a private port, Port Latta, are included, the figure for tonnage was approximately 17 million tonnes. However Port Latta does not utilise any of the State’s land transport infrastructure, as the ore is moved to the Port via a pipeline. Tasmanian exports were valued in the vicinity of $3,626 million, with a total mass of nearly 10.5 million tonnes. In comparison, imports are valued at around $3,799 million with a mass of more than 4.3 million tonnes. These figures highlight the relatively low value, but high volume, of Tasmania’s exported bulk commodities.

9 Australian National Accounts: National Income, Expenditure and Product, ABS Cat No 5206.0 10 Airfreight makes up no more than about one per cent of the total tonnage and therefore is not included.

According to the FDS, the State’s most significant export item is woodchips, of which nearly four million tonnes were exported in 2003, followed by cement (more than 1.1 million tones) and paper and newsprint (nearly half a million tonnes). Other significant export items include metallic ores and concentrates, wood and logs, vegetables and refined zinc (each between 0.25 and 0.5 million tonnes). Significant import items by mass include petroleum products, mineral concentrates, metallic ores and mixed groceries (all between 0.25 and 1 million tonnes). By value, the most significant items include mixed groceries ($757 million), petroleum products ($717 million), machinery and parts ($408 million), consumer goods ($337 million) and motor vehicles and parts ($281 million).

1.3. Key Demand Drivers for Tasmania This Report canvasses and discusses a number of demand drivers that will influence the future development of infrastructure in the State. Some of the significant issues discussed include: − changes in the State’s demography including an increasingly ageing population and, within 10 years, a decreasing population of those of working age; − changes in settlement patterns resulting in a growing number of people settling in urban or urban fringe areas at the expense of rural areas; − the anticipated increase in the freight task and subsequent pressure on transport infrastructure; − the impact of a number of significant developments including the proposed Gunns’ pulp mill, Lauderdale Quay development and the Direct Factory Outlet; − the impact of other significant infrastructure investments such as Basslink which has connected Tasmania to the National Energy Market (NEM) and provides for an optic fibre cable; and − increasing demand for water for use in primary industry; and − supply and water quality issues in regional and urban settlements.

1.4. State Governance 1.4.1. Regulatory Framework Resource Management and Planning System Tasmania's Resource Management and Planning System (RMPS) was established in 1994 to achieve sustainable outcomes from the use and development of the State's natural and physical resources. The RMPS covers a variety of areas including: land use and development, State policies and projects, environmental management and pollution control, historic cultural heritage and major infrastructure development approvals. Decisions by local planning authorities and State Agencies under the RMPS on the use and development of resources take into account wider economic, social and environmental implications. In doing so, the objective is to focus on how use and development occurs rather than what it is. The RMPS is a framework of legislation. Several pieces of legislation embody the aims of the RMPS. The Land Use Planning and Approvals Act 1993 (LUPAA) is the

principal planning Act, and provides for the preparation and amendment of planning schemes and the development assessment process, including development applications, appeals and enforcements. LUPAA is central to the delivery of land use planning. LUPAA is supported by the: − State Policies and Projects Act 1993, (SPPA), which provides a process for making State Policies, State of Environment Reporting and a process for assessment of Projects of State Significance; − Resource Management and Planning Appeal Tribunal Act 1993 (RMPATA), which establishes an independent body and a legal framework to review resource management and planning decisions; and − Resource Planning and Development Commission Act 1997 (RPDCA), which establishes an independent body to review State Policies, planning schemes and conduct other inquiries. The Environmental Management and Pollution Control Act 1994 (EMPCA) and Historic Cultural Heritage Act 1995 (HCHA) also have direct links with the planning assessment and approval processes established under LUPAA. There are several essential elements in ensuring the RMPS is applied effectively. These are: − Strategic planning: Strategic planning allows government, industry and the community to agree on common strategies for resource use and development, reducing the likelihood of conflict over individual developments. It also ensures that short-term decisions are consistent with long-term goals. This allows the needs of future generations to be taken into account when providing for the resource development needs of existing communities. − Flexibility and currency: Moves towards a performance-based approach is consistent with achieving outcomes rather than adherence to inflexible prescriptive standards. This needs to be balanced against the need for such prescription to provide certainty for system users. − Whole of government approach: An integrated approach by the different sections and levels of government promotes the efficient management and planning of resources. This is also essential for the consolidation and coordination of planning approvals. − Public participation: Public participation allows the community to establish an agreed direction for the use and development of resources and the appropriate parameters to achieve it. − Monitoring the state of the environment: Decisions have to be made with as complete knowledge of the environment and its condition as possible. Monitoring of the environment will allow strategies, planning schemes and ultimately decisions to be adjusted in response to changes to, or new knowledge about the environment Resource Planning and Development Commission The Resource Planning and Development Commission (RPDC) is an independent statutory body established by the RPDCA. It oversees the State's planning system, and is responsible for the following principle functions: − assessment and approval of local government planning schemes and planning scheme amendments;

− assessment of Projects of State Significance; − assessment of Draft State Policies; − preparation of the Tasmanian State of the Environment report; − conducting inquiries into the use of public land; − review of the representations and the report of the Secretary of the Department of Primary Industries and Water relating to draft water management plans; and − consideration of draft development plans and any representations, statements and recommendations contained in a report of the Sullivans Cove Waterfront Authority. The Department of Justice provides policy direction related to the State's statutory land use planning processes, including issues related to planning legislation, associated statutory functions and the general provision of advice to the Planning Minister. Much of the planning system is delivered on a day-to-day basis by local government through planning schemes. A planning scheme outlines the strategic objectives for a local government area and for specific zones. It details relevant performance criteria and the type of use and development permitted in particular locations of situations. A planning scheme is the basis under which councils issue planning permits for use and development. It comprises a text document (ordinance) and a set of planning scheme maps showing the different land use zones. The two must be read in conjunction with one another. A planning scheme is binding on all members of the public, State Government agencies, public authorities and local councils. 1.4.2. Local Councils and Regions Local Councils The Local Government Act 1993 provides the constitutional basis of local government in Tasmania. In Tasmania, local government is made up of 29 councils each responsible for a municipal area. Local councils in Tasmania are responsible for a range of community needs including: − road construction and maintenance; − rubbish collection; − stormwater drainage; − water; − planning and building services; and − street lighting. The role of Councils in Tasmania's planning system is set out under the Land Use Planning and Approvals Act 1993 (LUPAA). Under LUPAA, Councils are designated as planning authorities. Their role is the: − preparation and administration of planning schemes; − certification of amendments to planning schemes; − assessment and approval of applications for planning permits for the use and development of land; and − enforcement of planning scheme provisions and permit conditions. Regional Planning

Reforms to regional planning processes to provide more effective coordination of infrastructure investment are under consideration as part of the planning reforms underway (see 1.4.3). 1.4.3. Planning Reforms In 2004 the State Government commenced the “Better Planning Outcomes” Project in order to determine whether changes were required to Tasmania’s Resource Management and Planning System to keep it up-to-date and ‘in-tune’ with recent Government initiatives and policy directions. The Project focuses on: − gaining greater certainty of planning processes for governments, industry and the community; − a planning system that balances industry and community interests without jeopardising the cost effectiveness of planning schemes that have a sound strategic basis; − better integrated and more effective delivery of relevant policies and strategies of all levels of government; and − a simpler more streamlined system reducing the costs for business.

2. Transport 2.1. Sector Overview Tasmania is an island State that is approximately 68,000km2 in size. It lies off the south-east coast of mainland Australia and is separated by Bass Strait which averages 240km in width. At its greatest length, Tasmania stretches 290 km from north to south and 315km east to west at its greatest length and width respectively. As an island state with an export-oriented economy, Tasmania is totally dependent on shipping and air services for the interstate movement of goods and passengers. Efficient and competitively priced interstate transport is a key factor affecting industry competitiveness and growth, and passenger accessibility. Intrastate freight and passenger transport is predominantly road-based. Rail is an essential transport mode for the movement of bulk goods, including mineral products, and provides an alternative transport mode over the contestable freight market. Private car ownership in Tasmania is high, with generally low use of other modes for passenger transport. Government funded public passenger transport is primarily directed at meeting the essential access needs of the transport disadvantaged. Outcomes such as reducing traffic congestion are secondary to accessibility, equity and cost effectiveness. Tasmania’s land freight task has grown significantly in recent years, with a forecast doubling in the period 2004-2020 already well underway. Further development of Tasmania’s forestry, agriculture and mining industries and downstream processing is anticipated, and this will substantially increase demands on the State’s land transport system and services, export ports and intermodal facilities. Competitive air services and the operation of two passenger ferries have significantly increased inter-state passenger access. The key drivers facing Tasmania’s transport system are: − a growing freight task, predicted to outstrip national freight growth rates, resulting in significantly higher volumes moving through ports, intermodal facilities and over the State’s road and rail network. This has implications for the: road/rail modal split used to cater for the intrastate task; and efficiency of intermodal facilities, including ports, as transfer points for inter/intrastate freight. − rail infrastructure constraints, reflecting historic underinvestment, affecting performance and relative competitiveness; − meeting accessibility needs with a highly dispersed settlement pattern; − ageing transport infrastructure with a high maintenance cost; − budgetary constraints affecting expenditure in all sectors. Future joint funding arrangements on the AusLink Network will have an impact on funding patterns over the remainder of the State’s road network; − continued growth in heavy freight, light commercial and passenger vehicle kilometers traveled (VKT); − rising private car use and low use of other transport modes; − demographic changes, including an ageing population, affecting transport need and infrastructure and service responses; and − general increase in economic and industry activity, particularly in the tourism, manufacturing, forestry and mining sectors.

Tasmania has an extensive transport system (Map 2). Interstate freight and passenger transport is facilitated through four major sea and air ports in the north, north-west and south of the state. Freight movements are focused on the three northern ports, with the majority of passenger movements occurring through Hobart International Airport. Tasmania has an extensive road network, with one of the highest per capita road lengths of any Australian state. Intrastate passenger transport is predominantly road-based and focused on private cars. Bus-based metropolitan public passenger services operate in all four of Tasmania’s major urban areas, supported by school buses and community transport in rural and regional areas.

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# " # #" #

Seaports # Major Port # Minor Port Airports " M ajor Airport " M inor Airport Rail # Operational Routes AusLink " AusLink Network # State Roads Trunk Road (Cat I) Regional Freight Road (Cat II) Regional Access Road (Cat III)

Feeder Road (Cat IV) Other Road (Cat V)

Map 2: Tasmania’s Strategic Transport System

Tasmania’s rail network covers 630km of operational narrow gauge track, divided into six lines connecting major ports, cities and processing industries. The rail network is currently only used for freight transport, and is operated by Pacific National Tasmania (PNT).

The key drivers of the transport infrastructure landscape in Tasmania are detailed below. Road − Expected growth in Tasmania’s freight task presents challenges for road infrastructure provision and maintenance. − Impact of changing forestry patterns as plantations come on line, including changing heavy vehicle use of local roads. − Future joint funding arrangements on the AusLink Network will impact on available funding over the remainder of the State’s road network. This could potentially result in an increased gap in performance standards between the AusLink Network and the State and local road networks. − Future high productivity vehicle gains will be considered in the context of Tasmania’s land transport system, including the relationship to, and competitive position of, rail. − Tasmania’s dispersed road network results in a diverse road user mix across much of the network, including between public, freight, private and tourist vehicles. − Tasmania does not experience serious congestion in its urban areas and has a dispersed intrastate and inter-urban population. In this context, accessibility and meeting the transport needs of the disadvantaged, is a key policy objective for private and public passenger transport. This includes better understanding the spatial location of transport disadvantage, nature of transport need and supporting the delivery of public passenger services in a way that meets user need. − While efficiency is generally adequate at a network level, local issues exist. Serious congestion is not an issue in major urban areas. However, there are critical road network sections including the Brooker Highway and Tasman Bridge (Hobart) and Wellington/Bathurst St couplet (Launceston), where opportunities for efficiency improvements exist. Rail − Rail carries almost half the State’s freight task in net tonne kilometres and carries an estimated one third of the total contestable freight task. It is an essential mode for the movement of bulk commodities, including mineral products from the west coast; in intra- port connectivity; and as an alternative transport mode supporting competitive transport options for industry. − While all levels of government have invested heavily in Tasmania’s road network, particularly the AusLink National Network, rail modal share was protected by regulation when the infrastructure was owned by the Commonwealth, and received little investment in productivity improvements. The subsequent privatisation of the network by the Commonwealth resulted in few productivity and infrastructure investment improvements. As a result of this historic under-investment, much of Tasmania’s rail network and rolling stock is considerably aged, which impacts on its performance and competitive position. Sea − Over 99 per cent of Tasmania’s total export freight task by volume is moved by sea. Tasmania’s sea freight task has grown by 23 per cent in tonnage terms and 55 per cent in container terms over the last five years, with Tasmania exporting twice as much as it imports.

− Tasmania has an adequate supply of port infrastructure, with four major ports in the north, north-west and south of the State. Activity is concentrated in the three northern ports, with Launceston (Bell Bay) the major port in terms of tonnage and Devonport the major container port. − Constraints on further expansion around the Burnie, Hobart and Devonport ports exist as a result of adjacent residential and commercial uses. Air − Interstate air access continues to perform well, with record capacity and service levels, achieved under competitive regional services. Higher capacity has been beneficial for both passenger access and freight transport. − Air is not a major transport mode for intrastate travel, however it is critical for access to and from the Bass Strait Islands. In this context, the sustainable funding of airport infrastructure on King and Flinders Islands is an issue into the future. 2.2. Road While road infrastructure is only one part of a multi-modal transport network, it provides the focus for private and commercial travel in Tasmania. The Tasmanian Government owned State Road network, including the AusLink National Network, forms the core of the road network and carries the most intensive transport task, including the majority of the road freight task. Tasmania’s highly dispersed settlement and industrial pattern creates issues for road maintenance and infrastructure provision into the future. Approximately 70 per cent of Tasmania’s annual State Road budget is spent on maintenance. An expected significant increase in the State’s freight task will further impact on funding sustainability and capacity. The relative modal split between road and rail, which performs well in terms of net tonne kilometres and in meeting the needs of bulk commodity based industries, is a major issue. As the major intrastate transport network, roads attract significant stakeholder, including community and industry, attention. Expectations as to what the road system should deliver are growing. Managing these expectations in the context of the State’s limited budgetary capacity, and informing stakeholders as to the impact of private and commercial land use and development decisions on the road network, is a significant issue into the future. 2.2.1. Supply Tasmanian Road Network Tasmania has a high road network per capita (Figure 6). The State has approximately 23,000km of improved roads. This includes a high proportion of forestry and hydro roads, which are generally located in rural areas. Figure 7 shows road network ownership. It does not include links to Hobart or Launceston Airports, the State’s major passenger airports.

NSW 6600

Vic Qld 370 14 0 0 0 SA Tas 3350 WA Lo c a l State National Network Hydro /fo res try 0 10203040

Figure 7 Tasmanian road network by Figure 6 State road network per capita ownership (km) 23

The AusLink Network covers Tasmania’s major inter-regional freight and passenger routes, linking major urban centres (Hobart, Launceston and north west Tasmania) and ports (Map 3). The Network excludes some significant road links: Brooker Highway (Hobart), Illawarra Road (near Launceston), Tasman Highway (east) linking to the Hobart International Airport, and western section of the Bass Highway. It does not include the Hobart or Launceston Airports, the State’s major passenger airports. The Tasmanian Government-owned State Road Network covers around 4,000km, and links major urban and regional towns, sea and air ports and industrial areas. Although representing a relatively small proportion of the total road network, State Roads carry almost 60 per cent of total traffic. The Network is classified into five functional categories (see Map 3). Category 1 roads, which include the AusLink Network, carry the largest number of vehicles, at approximately 10.5 million vehicle kilometres annually. In 2005, the estimated value of the Tasmanian Government owned State Road Network was around $3.3 billion. Local roads cover 14,079 km, or around 79 per cent, of Tasmania’s road network. This proportion is similar to the national average of 82 per cent. Around 80 per cent of local roads by length are located in rural areas, with around 50 per cent unsealed. The majority of local roads carry relatively low traffic volumes, supporting localised passenger and commercial vehicle access and movements, and agriculture and forestry activity. In 2005, the replacement value of the local government road network was around $3.4 billion. 2.2.2. Demand Traffic In 2003, Tasmania recorded an estimated 4,639 million vehicle kilometres travelled (VKT). Two thirds of this travel occurred on the AusLink and State Road networks, and around one third on the local government network. Based on current trends, Tasmania’s total VKT will increase by 33 per cent by 2020, which is similar to the Australian trend. With the exception of buses, all major vehicle classes have shown an increase in kilometres travelled. Growth has been highest for light commercial vehicles and rigid trucks. Freight In 2002-03, the Tasmanian Government undertook a statewide Freight Demanders’ Survey (FDS) examining freight movement across Tasmania’s entire land transport network by commodity type, trips, mass and value. The survey is based on data provided by private companies, and is the only one of its kind in Australia. It provides important information on the nature and spatial location of freight trips; movements between and through major sea and air export points; and between industrial areas. The information can be analysed at various spatial scales, including at a regional or local government level, along a road or road segment, or by individual sea or air port. The Tasmanian Government is in the process of updating the Survey for the 2005-06 financial year. Much of the analysis below is based on the FDS. In 2002-03, Tasmania’s heavy freight task was valued at over $11.6 billion. It comprised over 1.2 million trips annually at a combined commodity mass of almost 26.7 million tonnes. Major freight generators included resource industries (e.g. forestry, mining) and consumer goods (e.g. groceries, fuel) (Figure 8).

Length (km) AusLink 368.4 Cat 1. Trunk 449.3 Cat 2. Regional Freight 384.3 Cat 3. Regional Access 769.4 Cat 4. Feeder 827.9 Cat 5. Other 1221.6 TOTAL 3652.4

Map 3: Tasmanian State Road Hierarchy and AusLink Network

By mass and number of trips, forestry is the single major contributor to Tasmania’s land freight task. In 2002-03, hardwood and softwood logs and woodchips represented over 35 per cent of Tasmania’s total freight mass and almost 25 per cent of all heavy freight trips. Tasmania’s forestry freight task is highly dispersed, however movement of product is primarily intra-regional (Map 4). Pulpwood is generally transported to the nearest of three destination mills: Hampshire

Burnie (North West), Longreach/Bell !O !R Scottsdale !O Bell Bay !R Bay (North), or Triabunna (East Hampshire !R Launceston Coast). !O Projections for timber volumes in Tasmania indicate continuing high levels of supply across all timber types until at least 2021.

The transitional nature of Triabunna !R harvesting activity poses Hobart!O significant challenges for the O! provision of a road network able Mass of Hardwood and Softwood Logs (tonnes) to safely support the forestry 400 - 83000 84000 - 240000 freight task. Increased plantation 250000 - 480000 490000 - 850000 development, particularly on 860000 - 2300000 private land, will further impact on road infrastructure as private plantations tend to be disparately Map 4: Regional pattern of forestry freight, Tasmania and discretely located, with access provided through lower category regional roads. Currently, all forestry freight is moved between the forest and the export mill by road. However, the proposed Gunns’ pulp mill at Longreach in northern Tasmania identifies rail as a possible transport option for the movement of forest product from the south and north-west to the mill site. Regardless of transport option, if approved the pulp mill will significantly alter the pattern of road usage for forestry freight transport in the State. The final decision as to modal use or share will be a commercial decision for the 90 80 proponent. 70 Tasmania’s freight task is predicted 60 to double by 2020, with current 50 trends supporting this growth. The 40 30

Tasmanian freight task measured in Tonnes Million 20 tonne-kilometres is growing at an 10 average of 4.8 per cent per year. If 0 this trend continues, the Tasmanian 004 006 008 016 018 020 freight task will double from 2004 to 1998 2000 2002 2 2 2 2010 2012 2014 2 2 2 2020 (Figure 9). SMVU Results Projection While the average load carried per trip by freight vehicles has been Figure 9: Projection to 2020 of Total Tonnage increasing, a slight decrease was Carried on Tasmanian Roads

recorded in 2005. Rigid vehicles (which includes the use of rigid vehicles with hi- productivity trailers such as Super Dogs) appear to be increasing as a proportion of the freight task compared to articulated vehicles (which includes B-doubles). Over the last eight years, the average tonne-kilometres travelled by Tasmanian trucks has: − increased 150 per cent for light commercial vehicles (light commercial vehicles carry only 5.7 per cent of the freight task measured in tonne kilometres); − increased 50 per cent for rigid vehicles (this high increase compared to other freight vehicle types); − appears to be mostly due to the increasing use of rigid vehicles with hi- productivity trailers such as super dogs for long distance travel; and − increased by 11 per cent for articulated vehicles. Passenger Passenger transport in Tasmania is road based. Private cars are the major passenger transport mode, the public passenger transport system is bus-based, and aside from a small number of dedicated bicycle tracks, cyclists generally use on-road infrastructure. Private vehicle ownership and VKT are increasing: − Vehicle ownership: Between 1991 and 2005, the number of registered passenger vehicles increased by 17.7 per cent. In contrast, Tasmania’s population increased by only 4.1 per cent. In 2005, there were 263,365 registered passenger vehicles in Tasmania. The number of households without a vehicle declined between 1991 and 2001, from 11.7 per cent to 9.9 per cent of Tasmanian households. − Passenger vehicle kilometres travelled: Between 1999 and 2005 total passenger VKT increased by 41 per cent and average passenger VKT increased 22 per cent. For the year ending 31 October 2005 total passenger VKT was 3 767 million, with average distance travelled per passenger vehicle at 14,100km. − Traffic flows and growth on major roads: Average daily traffic volumes on Hobart’s key urban arterial routes grew by, on average, 79 per cent in the period between 1983 and 2003. VKT on the road comprising the AusLink Network increased 19 per cent between 1995 and 2005. 2.2.3. Performance In terms of coverage, Tasmania has an extensive road network. As the primary intrastate transport network, the road system makes a significant contribution to broader economic and social objectives. In the context of a growing freight task and urban fringe area residential and commercial development, the challenge will be to meet efficiency and safety objectives by maximising the use of existing infrastructure, rather than the provision of new road infrastructure. Freight growth Tasmania’s freight task is predicted to at least double between 2000 and 2020. The relative modal split between road and rail to cater for this growth is a significant issue into the future. The Tasmanian Government is committed to maintaining rail as a transport option and will consider future high productivity vehicle gains in the context of Tasmania’s land transport system, including the relationship to, and competitive position of, rail.

Road infrastructure provision and maintenance to support the State’s highly dispersed freight task will be critical for State and local government. Congestion While levels of congestion in Tasmania’s urban areas are small compared to other Australian cities, it is perceived to be a problem by the community. The Tasmanian Government has undertaken an initial study examining the extent and severity of congestion on major arterial roads in Hobart. The study showed that the Brooker Highway, Hobart’s major route in terms of passenger, commercial and industrial traffic, experienced the greatest level of delay and slowest travel speeds at all times and in all directions. Continued commuter growth and an expanding freight task indicate efficiency on this important corridor may continue to decline. Road Condition In 2004-05, over 97 per cent of road travel undertaken in Tasmania occurred on roads with a surface roughness of less than 110 NAASRA11 Roughness Meter (NRM). Austroads identifies a roughness level of less than 110 NRM as normally providing acceptable travel conditions. Safety Tasmania’s extensive road network, high proportion of rural roads, hilly terrain and comparatively older vehicle fleet, present unique road safety challenges. In the last ten years, the number of fatalities each year has remained relatively unchanged, while the number of serious injury crashes has decreased. Minor injury crashes have increased since 1997 (Figure 10). 2.2.4. Investment The Tasmanian Government maintains a five-year forward works programme for the State Road network. The current Tasmanian Transport Infrastructure Investment Strategy details the main projects to be undertaken in the 2006-07 financial year and projects planned for the five-year forward works programme. The Strategy is guided by broad objectives and takes into account key demand drivers, including an increasing freight task. In 2006-07, the Tasmanian Government will invest $85.5 million in maintaining and improving the State’s road network. This includes: − Capital Investment Program: $66.5 million; − Special Capital Investment Fund: $7.6 million; and − Better Roads Program: $11.4 million.

11 National Association of Australian State Road Authorities

In its 2006 budget announcements, the Tasmanian Government indicated infrastructure funding of $332 million for the development and maintenance of Tasmania’s road network over the next 4 years. Major projects include: − $10 million, Brooker Highway; − $14 million, Lyell Highway; − $10.2 million, Sisters Hill; − $8.7 million, South Arm Rd; − $8.3 million, East Tamar Highway and southern approaches to Launceston; − $4.8 million, commencement of work on main access routes to the Central Highlands; − $2.5 million, traffic management, Sorell; − $3.1 million, Illawarra Main Rd; and − $2 million Blackspot funding and $1 million for line marking. Under Auslink, the Commonwealth co-funds the national highway system. This may impact the State’s ability to fund upgrade and maintenance programmes across the remainder of the network and, specifically, regionally significant State roads. This may result in an increased gap in performance standards between the AusLink Network and the State and local road networks

Budgetary Constraints Over the past fifteen years, the Tasmanian Government has moved from a focus on road construction to strategic management of a substantially mature network. Tasmania’s road network is extensive and supports a highly dispersed freight and passenger vehicle task. Maintenance now accounts for 62 per cent of the State Road budget, and has remained consistently above reinstatement and upgrading works for the past decade (Figure 11). As a proportion of Tasmania’s road budget, maintenance expenditure has continued to increase over the past five years, and is now significantly above upgrade and reinstatement work. Joint construction and maintenance arrangements under AusLink will further impact on the availability and relative allocation of maintenance funding into the medium-term. 2.2.5. Policy, Planning and Regulation The Tasmanian Government owns and manages the majority of the State’s strategic road network. It has primary responsibility for land transport planning and construction and maintenance over this network, and has the legislative ability to restrict accesses onto major arterial roads. The Government is responsible for identifying and declaring high

productivity vehicle routes, the development and implementation safety programmes for passenger and heavy vehicles, and regulating vehicle standards. The Tasmanian Government provides significant public passenger subsidies, including for urban services, school buses and specific need groups. The Government determines the areas to be serviced by regular bus services and manages associated service contracts. Policy The Tasmanian Government aims to maximise safety and efficiency across the Tasmanian road network. Various policies and strategies support this aim. In the context of a growing freight task, the efficient and cost-effective movement of freight across the intrastate transport network and to and from export points is critical. An extensive existing road network, high maintenance liability and budgetary constraints, make optimisation of the existing road network in catering for the State’s freight task a key strategy going forward. Road and rail are both critical intrastate freight transport modes. The Tasmanian Government will consider freight planning in the context of an intrastate road and rail transport system, pursuing opportunities in both modes that enhance efficiency and productivity, maximise inter-modal relationships and competitiveness, and deliver choice and cost-effectiveness to industry and the broader community. Accessibility is the key passenger transport objective, reflecting a focus on meeting user need over mobility. A safe system approach that ensures when a crash occurs it does not result in serious injury or death is a guiding road safety objective. The various components of the Tasmanian Government’s road safety programme are detailed in the existing Tasmanian Road Safety Strategy (discussed below), shortly to be released as an updated strategy outlining the next five years of the State’s road safety programme. Planning and Regulation Maintenance first: Tasmanian Government has a high maintenance liability, and is focused on managing a mature road network over road construction. A maintenance first policy reflects the Government’s budgetary constraints and its obligations to maintain the existing, extensive network to an appropriate standard in terms of safety and efficiency, and to reduce long term contingent liabilities. Road Safety Strategy: Tasmania’s extensive road network, numerous rural roads, hilly terrain, and comparatively older vehicle fleet are particular characteristics that impact on road safety approaches and outcomes. The Tasmanian Government supports an approach to road safety that combines enforcement, education, engineering initiatives and community involvement. The Tasmanian Road Safety Strategy 2002-2006 provides the Tasmanian Government’s strategic road safety framework. It focuses on three core areas: safer roads, vehicles, and users, and six strategies: education, enforcement, engineering, partnerships, promotion and research, in improving road safety. The Tasmanian Government is in the process of further improving its crash data analysis capabilities, and this includes risk mapping of the State Road network. A new Tasmanian Road Safety Strategy for 2007-2011 is currently being developed. Tasmanian State Road Hierarchy: Tasmania’s State Road network is strategically planned via a road hierarchy system. The Hierarchy consists of five categories in

decreasing order of priority from Category 1 (Trunk Roads) to Category 5 (Other Roads) (Map 4). The Tasmanian State Road Hierarchy reflects the function of individual roads within the network. It provides direction for future planning and assists with ongoing transport system management by ensuring that the planned function and use of roads is clarified across the whole of the network. The State Road Hierarchy is based on measured use, current and planned function, social and economic trends, and broader policy and planning strategies. An updated State Road Hierarchy is due for release at the end of March 2007. Regional transport plans: Regional Burnie !O transport plans provide a strategic Devonport !R !O !R framework for the planning and !R La unceston management of regional transport and !O infrastructure networks over the long- term. Each plan is prepared in partnership with local government. The Cradle Coast Integrated Transport Strategy 2006 and Northern Tasmanian Integrated Transport !R Plan 2004 have been adopted. The final Ho!O bart Southern Integrated Transport Plan is O! currently under development.

runk RoadTrunk (Cat Road I) (Cat I) Tasmanian Transport Infrastructure egional FreightRegional Road Freight (Cat Road II) (Cat II) egional AccessRegional Road Access (Cat Road III) (Cat III) Investment Strategy: The annual eeder RoadFeeder (Cat Road IV) (Cat IV) ther Road (Cat V) Tasmanian Transport Infrastructure Other Road (Cat V) Investment Strategy identifies key Map 4: Tasmanian State Road Hierarchy investment priorities for Tasmania’s road network. It consolidates the objectives and content of other strategic planning documents as these relate to the strategic road network. The Investment Strategy is supported by a number of more detailed operational strategies. The Strategic Asset Burnie Management Plan (2005) outlines the O! Devonport !R O! !R strategies and principles guiding on- !R Launceston ground management of the State Road O! network. It focuses on ensuring each road category delivers its intended level of service and retains a high level of functionality. The Road Asset Management Plan and Bridge Asset !R

Management Plan provide more detailed HobartO! information on management of the O! State’s road and bridge assets. High Productivity Vehicle networks:

High Productivity Vehicles (HPV) tiitVhil(BDbl)Rt

Map 5: Tasmania’s HPV route network 31

routes facilitate the movement of heavy vehicles throughout the state, linking major towns and export points. Map 5 outlines Tasmania’s HPV route network. State Road Network limited access regime: The State controls the location of accesses on all State Roads declared as limited access. The approach is one component of broader policy of access management, which aims to reduce vehicle conflict by controlling the number of accesses onto a road. The approach focuses on: − the number of access points; − ensuring adequate visibility to and from accesses and junctions; and − limiting the number of accesses and effect proper spacing between junctions. Broader outcomes include maintaining major road safety and efficiency, and protecting the community’s investment in the arterial road network. Around 20 per cent (780km) of the State Road Network is limited access (Map 6). State Infrastructure Planning System (SIPS): A GIS-based approach with repeatable analytical capabilities, SIPS allows the assessment of infrastructure need by modelling infrastructure supply against current and future demand. It supports strategic decision making through the ability to: − conduct scenario modelling of infrastructure demand and infrastructure provision and forecast the likely impacts for different scenarios; − model resource demand drivers and ascertain their impact on infrastructure; − recognise gaps in infrastructure provision and potential future gaps; and − spatially represent infrastructure supply and demand within Tasmania.

Burnie O! Devonport !R O! !R !R Launceston O!

HobartO! O!

Map 6 Tasmanian limited access road network

2.2.6. Conclusions, Key Issues and Challenges The key issues surrounding Tasmania’s road infrastructure include: − Expansion of the AusLink Network to encompass major freight corridors, including the Brooker Highway, Illawarra Main Road, Bass Highway to Smithton, and Tasman Highway (east) to the Hobart International Airport. − Future joint funding arrangements on the AusLink Network will impact on available funding over the remainder of the State’s road network. Potential for an increased gap in performance standards between the AusLink Network and the State and local road networks as a result. − The AusLink programme focuses investment on a limited part of the transport network, rather than aligning with the transport task and improvements that create the greatest transport system benefits. − Measuring and meeting the accessibility needs of all Tasmanians in the context of a dispersed settlement pattern and in consideration of socio-economic factors, and the requirements of communities and individuals. Managing stakeholder expectations as to what the State’s road system can deliver, including infrastructure responses in a constrained budget environment. − Growing freight task, with implications for road and rail modal split, road maintenance and infrastructure provision.

2.3. Rail Tasmania is a net exporter, with a significant focus on bulk commodities, including forestry and mineral products. Rail is a key mode in the intrastate movement of these bulk commodities. It is critical in providing an alternative transport mode to road, supporting competitive transport options for both existing industries and potential major projects such as the proposed pulp mill. In providing a modal alternative, it is significant in reducing externality costs associated with road. Over the longer term, and as part of a strategic transport system, the Tasmanian Government considers rail to be an essential element in meeting the needs of Tasmania’s growing freight task. While all levels of government have invested heavily in Tasmania’s road network, particularly the AusLink National Network, rail has received limited attention and has been largely viewed as a private sector concern. While under Commonwealth ownership, rail modal share was guaranteed under regulation. This resulted in a disincentive to invest in a productive and efficient infrastructure network. The Commonwealth Government privatised Tasmania’s rail system in 1997 and for nine years the rail system was privately owned. As a result of this historic under-investment, Tasmania’s rail network faces significant infrastructure and rolling stock constraints. In Tasmania, the situation has been distorted by past failures to invest in either new rail assets or adequate maintenance. The result has been a progressive decline in the competitive position of rail, meaning road users have not had any real choice in terms of switching to rail. 2.3.1. Supply Tasmania’s rail network consists of 630 kilometres of operational narrow gauge track, divided into six lines connecting major ports, cities and processing industries (Map 7). There are three sections of non-operational track: the Derwent Valley (beyond Norske Skog), Western (beyond Burnie) and North east (Tonganah) lines. Table 3 outlines the major characteristics and commodities carried by each line. Rail freight operations are currently undertaken exclusively by Pacific National Tasmania (PNT), which owns all track infrastructure, rolling stock and associated plant.

Table 3: Rail network characteristics Line Section Rail Speed Limit Maximum Axle Major Freight Items (km/hour) Load (Tonnes) Hobart to Western 70 18 Containers, newsprint, refined zinc, paper pulp, coal Junction Western Junction to 70 18 Bulk cement (between Railton and Devonport), containers, Burnie paper pulp, newsprint, coal Fingal Line 70 18 Coal Bell Bay Line 65 18 Containers, newsprint Boyer Line 40 18 Paper pulp, newsprint West Coast Line 45 16 Mineral concentrates

Burnie Port

Australian Paper "#Î Devonport Port Bell Bay Port "Î "Î Hampshire # Woodchip Mill # # Cement Tasmanian Australia Mines Limited Cornwall Coal # ##Bluestone Tin Zinifex Rosebery Mine

Norske Skog # # Zinifex Hobart Smelter "Î Hobart Port

ng Operating eduled ServicesNo Scheduled Services To u ri st Por"Ît Major Port stomers# Rail customers

Map 7: Tasmania’s rail network and key customers

2.3.2. Demand Tasmania’s rail network carries freight only. Regular passenger services ceased in 1978. While rail accounts for around six percent of Tasmania’s 60 million tonne freight task, it carries around 44 per cent of the State’s freight task in net tonne kilometres, and an estimated one third of total contestable freight. It is an essential mode for the movement of bulk commodities, including mineral products from the west coast, in intra-port connectivity and as an alternative transport mode supporting competitive transport options for industry. The rail freight task consists of a relatively small number of bulk commodity items, comprising around 55 per cent of the total rail task, and a growing intermodal task (Table 4).

Table 4: Major commodities carried, Tasmanian rail network, 2002-03 Commodity Tonnes Bulk cement 1,121,563 Containerised general freight 782,185 Bulk mineral concentrates 321,322 Bulk coal 315,157 Containerised newsprint 299,899 Containerised zinc 260,821 Logs 168,456 Paper pulp 99,169 All other freight (incl. dangerous goods) 103,778 Total 3,472,350

2.3.3. Performance Tasmania’s rail network faces some significant constraints: − Configuration: Reflecting topographical constraints and previous construction techniques, the current rail alignment includes steep gradients and tight curves, which limit train speeds and axle loads. Low speeds are of particular concern given comparative speeds on the road network may be as high as 110 km/h. − Short distance: The average haul distance for freight on Tasmania’s rail network is 167 km. − Intermodal facilities: With the exception of Bell Bay, most intermodal terminals and major ports in the State have limited scope for expansion. − Slow turnaround time: Trains are currently unable to achieve a 12-hour turnaround between Hobart and the northern ports (particularly Burnie). − Narrow rail gauge: Restricts rolling stock capabilities, speed and load height, and limits available markets from which second-hand equipment can be obtained. − Duplication by road: The Tasmanian rail network is almost entirely duplicated by the road network, meaning it has no unique markets or geographic advantage in serving its markets. Safety In 2005, five mainline derailments and three level crossing accidents were reported. Over the past several decades, the major method of meeting safety objectives with degrading infrastructure has been to reduce travel speeds. This approach is not considered sustainable in the long term. 2.3.4. Investment Under the proposed Rail Rescue package, the Australian and Tasmanian Governments have offered $118 million over ten years for capital investment and infrastructure maintenance, including $78 million for capital investment over ten years from the Australian Government and $4 million annually for routine track maintenance from the Tasmanian Government. These commitments are subject to PNT investing at least $38 million over eight years on improved rolling stock.

The Commonwealth Government has indicated it is also prepared to consider a $3.75 million contribution toward expansion of the intermodal terminal at Bell Bay, and up to $5 million toward a possible intermodal terminal at Brighton. Development In the longer term, developments to improve productivity capacity and north-south turnaround times may include: − acquisition of additional rolling stock, including more reliable, higher capacity locomotives; − improvement of alignment (curve and grade reduction) and fitting of high speed points and switches; − lengthening of existing passing loops to facilitate longer trains and more frequent operations; − construction of additional passing loops; − construction of new sidings to expand contestable freight market; and − upgrading and relocation of train receival facilities associated with ports and intermodal terminals. These developments are in addition to addressing existing maintenance backlog. The Tasmanian Government has undertaken modelling over part of the track infrastructure in order to better understand performance. The work indicates that improvements to existing infrastructure, through maintenance to remove temporary speed limits and replacement of current low-speed switches with track speed switches, would improve train performance. Brighton intermodal terminal: The freight forwarder Toll has identified the potential establishment of a new inter-modal road/rail hub at Brighton. The company currently operates out of Macquarie Wharf, and the project would see the transfer of road and rail operations to Brighton from the Port of Hobart. The main rationale for the proposed inter-modal hub is its potential to deliver a twenty-four hour turnaround for trains travelling between Burnie and Hobart. A new intermodal terminal at Brighton would reduce the length of train journeys originating in or destined for Hobart by about 25 km and provide more efficient loading facilities, allowing trains travelling between Hobart and Burnie/Bell Bay to reduce turnaround times by around two hours. Additional track productivity improvements would be required to reduce north-south turnaround times from 24 to 12 or 8 hours, depending on port terminus. 2.3.5. Policy, Planning and Regulation The rail network has not been the responsibility of the Tasmanian Government since 1978, when ownership of the network was transferred to the Commonwealth Government. During this time, the market share of rail was protected by regulation and there was little incentive to invest in infrastructure and productivity improvements. In 1997, the Commonwealth Government privatised Tasmania’s rail system with ownership of the network transferred to the private company, Australian Transport Network (ATN), and to Pacific National (PN) in 2004, after it acquired ATN. The Tasmanian Government considers freight planning in the context of an intrastate road and rail transport system, pursuing opportunities to enhance efficiency and productivity in both modes. The modal shift that may eventuate from any Government

policy that facilitates further improvements in road productivity, in advance of establishing optimum levels of investment in rail productivity, may be the catalyst for cessation of rail services across some lines. If this were to occur, the modal choice and competition offered by rail would be removed, as would its potential to cater to the future needs of industry and major projects. In this context, it is critical that the timing and implementation of any road productivity reforms considers the current position of rail and the need to support its growth as a key component of the state’s transport system. Under a Memorandum of Understanding between PN and the Tasmanian Government signed in August 2006, the Tasmanian Government is set to become the owner of the rail track network, excluding the West Coast line. The Tasmanian rail system will be subject to an open access regime with very low access charges. Commitment to maintaining a north-south Rail Link In terms of intrastate dynamics, Southern Tasmania is highly reliant on the northern ports for the movement of goods, with the majority of goods moved intrastate by road and rail to and from the Region, rather than through Hobart Port. Containerised traffic represents a significant quantity of north-south traffic. The Tasmanian Government is committed to maintaining a north-south rail link as part of a multi-modal approach to the movement of goods to and from the key northern ports to the State’s most populous region. There is further opportunity for rail to increase its share of this important and growing intermodal container market. A joint Australian and Tasmanian Government study into the viability of rail operations in Tasmania has shown the additional benefits of rail to the State in terms of environmental and safety outcomes. The study found that when externality costs were considered, the immediate consequence of PNT removing the majority of its services (i.e. an almost total freight shift to road) could have been over $3.8 million. Additional costs related to annual road maintenance, an increase of around $1.1 million and higher freight rates for rail customers, an increase of around $17.5 million. Rail Safety The Tasmanian Government is responsible for rail safety regulation in Tasmania. Improved safety outcomes are primarily pursued through a framework that provides the rail industry with the flexibility to identify and implement cost effective and lowest-cost means to mitigate safety risks. This approach includes leveraging industry participation through a co-regulatory approach, based on established performance based obligations. Regulation The Tasmanian Government is responsible for rail safety regulation in Tasmania, including collecting and publishing information on rail safety in the State and reporting to national land transport authorities. In accordance with the Rail Safety Act 1997 rail operators must be accredited before they can carry out railway operations. Operators are required to comply with minimum standards of competence, capacity and risk management in order to demonstrate their ability to safely run railway operations, and these are set by an Australian national standard. The Government monitors investigations of railway accidents and incidents, and has the ability to run its own investigations or, in consultation with the Minister, appoint an independent investigator. 2.3.6. Conclusions, Key Issues and Challenges − Over the past five decades, all governments have focused on new road infrastructure, with the level of road investment significantly outweighing

investment in rail across all States. This imbalance in investment has enabled road freight operators to take progressive advantage of the opportunities offered through larger, heavier and, therefore, much more efficient vehicles. Rail has struggled against this unequal competitor, and without equivalent public sector capital investment the replacement of its ageing infrastructure and rolling stock not always been financially viable. − The Tasmanian Government is committed to maintaining the north-south rail link, and this includes reducing turnaround times to increase efficiency. − In Tasmania it is critical that the timing and implementation of any road productivity reforms has regard for the current position of rail and the need to support its growth as a key component of the state’s transport system.

2.4. Ports and Intermodal Facilities Over 99 per cent of Tasmania’s total export freight task by volume is moved by sea. Unlike mainland competitors, which have access to 24-hour road and rail options, Tasmanian exporters must coordinate operations around scheduled shipping services. Over short distances, sea is relatively more costly for the movement of freight and adds a significant time penalty compared to land based transport equivalents. The Tasmanian Freight Equalisation Scheme is critical in addressing at least the up front cost disadvantage of this link between Tasmania and its export destinations. 2.4.1. Supply Tasmania has four major ports located at Burnie, Devonport, Bell Bay and Hobart (Map 8). Ports at Triabunna (TasPorts) and Port Latta (Australian Bulk Minerals) provide dedicated facilities for the movement of woodchips and iron ore, respectively. A third privately owned facility on the Derwent River, Hobart is owned and used by the private company, Zinifex. Various minor ports are located on the Bass Strait Islands and provide critical functions for these communities. Table 5 outlines major infrastructure and shipping services at each port.

"Î "Î "Î

"Î "Î "Î Port Latta "Î "ÎÎ Bell Bay Burnie "Î " Devonport

"Î

Triabunna "Î

Hobart "Î "Î "Î

"Î Major Port "Î Minor Port Map 8: Tasmania’s major and minor ports

Table 5: Characteristics of Tasmania’s major ports Port Services Infrastructure Intermodal facilities Hobart Major port for cruise ships and City wharves include facilities Road-rail intermodal facility at city Antarctic vessels. to cater for cruise ships, wharf, serviced by several freight Upstream facility for bulk fuels research and Antarctic vessels. operators. delivery (Self’s Point). City wharf provides ro-ro Zinifex wharf (private) caters for facilities and a container bulk products associated with zinc crane. production. Bell Bay Domestic and international Several cranes are available Satisfactory road access. container shipping services. including container cranes, Some limitations on efficiency of rail Bulk shipping services, including with ro-ro capability at one access, including siding length and woodchips. berth. location on berths, and steep departure grade. Burnie Daily domestic and weekly Container traffic facilities Well-developed intermodal facilities, international container shipping include a crane and ro-ro. including very good rail access onto the services. wharf. Bulk trades include fuels, export woodchips, and mineral concentrates.

Devonport Daily passenger services, catering East Devonport: facilities for Reasonable road access to both east and for passenger and wheeled freight ro-ro containers, passengers west facilities. vehicles. and various bulk products. Rail only available at West Devonport, Daily ro-ro container services. West Devonport: facilities for and only useful for cement trade, partly Bulk shipping services, including bulk products (primarily due to limited space availability. domestic cement trade and fuels. cement and fuels). Port Latta Export of pelletised iron ore. Triabunna Dedicated woodchip export port.

2.4.2. Demand Freight Tasmania’s sea freight task is focused on bulk products, with forestry products accounting for around one third of total exports. Activity is focused on the three northern ports, with Launceston Port (Bell Bay) carrying the largest tonnages and Devonport the highest number of containers. Map 9 shows total throughput by tonnage for major ports in 2004-05. During this year, an estimated 14.8 million tonnes of freight valued at around $7.4 billion dollars moved through Tasmania’s major ports at Burnie, Devonport, Launceston and Hobart (including Triabunna). In 2004-05, around two thirds of Tasmania’s total freight tonnage was exported (Figure 12) and around 70 per cent of bulk freight was exported. Forest products mainly woodchips, were the major bulk export, comprising over two thirds of total bulk exports and almost half of the total bulk tonnes handled by Tasmanian ports.

Table 6 shows trends in Tasmania’s total, bulk and container freight task, 2000-01 to 2004-05.

3,954,204 2,929,451

1,873,780 2,092,856 1,133,983 1,328,754 Bell Bay Burnie Total - 6,047,060 Total - 4,063,434 Devonport Total - 3,202,534

Triabunna Total - 1,172,970

769,434 1,144,236 Hobart Total - 1,913,670

Freight handled, major ports (tonnes) Export Import

Map 9: Throughput (tonnes), Tasmania’s major ports, 2004-05

Table 6: Trends in total, bulk and container freight Annual growth Total growth rate for Comments rate period Total mass tonnes 4.6% 19.6% Including exports through Port Latta, Tasmania’s total mass trade estimated at 18.5 million tonnes Total bulk tonnes 3.9% 16.6% (excl. Port Latta) Comprised around 70% of total tonnage Container mass Over 10% 46% Total growth more than double the rate of growth for tonnes total sea freight trade Combined with relatively low growth for bulk goods, these growth rates show more of Tasmania’s total sea freight task is being shipped in containers. Container 10% 48% Rate of growth was almost identical to growth in numbers container tonnes. Total growth in TEU numbers slightly higher than TEU tonnage shipped, indicating a small decrease in average container weight over the period

These forecasts do not take into account significant future changes, such as the additional freight task arising from the proposed Gunns’ pulp mill in northern Tasmania. Freight throughput at Tasmania’s ports is expected to continue to grow. Based on current annual growth rates of 4.6 per cent, total tonnage through Tasmania’s ports will exceed 43.5 million tonnes by 2025 (Figure 13). While growth can be expected to be highest in the container market, bulk trade is also forecast to grow: − Bulk freight: At current rate of 3.9 per cent per annum –double by 2025 to more than 24 million tonnes. − Containers: While recent high growth (in excess of ten per cent per year between 2000-01 and 2004-05) is unlikely to be sustained in the long term, even with comparatively modest future growth of four per cent per year, Tasmania’s container freight task will more than double by 2025 to almost one million TEU. Trade

In 2003-04, BTRE estimated 70,000,000 Tasmania’s total domestic freight 60,000,000 task at around 9.3 million tonnes. 50,000,000 In 2003-04 Tasmania’s total 40,000,000 international freight task was 30,000,000 estimated at around 8.7 million 20,000,000 tonnes, comprising around 48 per 10,000,000 cent of Tasmania’s total trade by 0 tonnes.

Tasmania imported about 1 per 3% 4.6% 7% cent of Australia’s total imports in tonnage terms, and exported about Figure 13 Total trade forecasts (tonnes), 2006-2025 1.4 per cent. The total value of Tasmania’s international imports was just over $500 million, representing about 0.5 per cent of the total value of Australia’s imports for that year. The total value of Tasmania’s international exports was just over $2 billion, representing about 2.2 per cent of the Australian total export value for that year. Passenger The introduction in 2001 of two modern, fast passenger ferries Spirit of Tasmania I and II providing services between Devonport and Melbourne, saw a major increase in demand for sea passenger travel. A large lift in freight capacity also resulted. In 2004-05, the vessels carried 451,917 passengers12, around 206,014 passenger cars and 68,720 TEU of freight13 (around 40 per cent of total container numbers through Port of Devonport). Low-cost airlines have had a significant impact on sea passenger numbers

12 These figure include patronage on the Spirit of Tasmania III, which ceased sailing on the Devonport-Sydney route in August 2006.

13 The freight carried by these vessels is consolidated with other ports, exports and freight data, and therefore considered elsewhere in this document.

and in 2006, a third fast ferry operating between Devonport and Sydney was withdrawn due to low passenger numbers. The number of cruise ships visiting Tasmania has increased in recent years, with 21 visits in 2004-05. This number is forecast to increase to 11 vessels and 59 visits with around 48,000 passengers by 2006-07.

2.4.3. Performance Service Levels Tasmania has adequate container shipping services. The addition of ANL has increased domestic shipping services from three to four shipping lines. Additional capacity is now available through TT-Line’s purchase of larger ships, while Toll Shipping has also increased its freight capacity significantly.

Implications of freight growth All Tasmania’s ports have significant spare capacity. However, significant reconfiguration may be required to handle expected higher container volumes and bulk freight in the future. The efficiency of port intermodal facilities will also need to improve to cater for larger freight volumes, and this includes the capacity and efficiency of supporting road and rail links. It is likely more ship movements will be required to transport higher volumes, even with the use of larger ships. These trends may impact on the provision of suitable wharf infrastructure; handling equipment; and supporting freight handling areas.

Port structure and future competitiveness Historically, Tasmania has had a high number of operating ports for a State and economy of its size. This contributed to some duplication of operations and administrative functions, with competition between ports for business in similar markets with limited overall scope for expansion. As at 1 January 2006, ownership of Tasmania’s four major ports, the port at Triabunna, and other minor ports was transferred to a single corporate structure, TasPorts. TasPorts has responsibility for port operations and administration, as well as for planning and managing capital investment. TasPorts now handles freight volumes comparable to that of Fremantle, approaching Brisbane’s and significantly greater than the South Australian ports. Amalgamation is expected to lead to greater operational efficiency, more efficient use of available assets and improved strategic planning and investment decision-making.

Limited expansion opportunities Burnie: Constrained by adjacent land uses. Some capacity to expand through reclamation. Issues related to protection of expanded port berthing facilities through additional breakwater provision. Devonport: West Devonport facilities heavily constrained by land availability and East Devonport facilities are heavily constrained by urban encroachment. Bell Bay: Some topographical limitations. Situated in an industrial area with no adjacent land use constraints. Considerable land nearby that may be suitable for port operations. Potential for further expansion via provision of port facilities away from the current major port area. Hobart: Constrained by adjacent residential and commercial land uses.

2.4.4. Investment Tasmania’s major port infrastructure is owned, controlled and managed by TasPorts, which is responsible to determine investment needs and funding opportunities. Major investment drivers include asset replacement and changes in demand for port services by shipping customers. TasPorts has approximately $150 million invested in capital infrastructure, however, this considerably underestimates the replacement value of the assets, some of which are well into their economic lives and are heavily depreciated as a result. 2.4.5. Policy, Planning and Regulation Tasmania’s port activity is expected to increase significantly over the next twenty years, with strong growth in total tonnage throughput, bulk trade and containers. The establishment of TasPorts is a major strategic initiative of the Tasmanian Government. In centralising port planning in one body, TasPorts provides the coordinated and strategic planning focus required to manage the expected increase in port activity. As an export oriented state, the Tasmanian Government is aware of the critical role of ports as intermodal transfer points for the movement of goods to and from the State. Maximising road and rail linkages to individual ports is critical. In terms of intrastate dynamics, Southern Tasmania is highly reliant on the northern ports for the movement of goods, with the majority of goods moved intrastate by road and rail to and from the Region, rather than through Hobart Port. Containerised traffic represents a significant quantity of north-south traffic. The relationship between port activity in the northern ports and the Southern Region is a consideration for strategic port planning. In the context of ongoing growth in the container market, there is a need to better understand the optimum arrangements for container movements into the north of the State. Commonwealth Government Assistance Schemes The Tasmanian Freight Equalisation Scheme and Bass Strait Passenger Vehicle Equalisation Scheme are critical to removing the cost disadvantage associated with movement across Bass Strait for industry and passengers, respectively. Tasmanian Freight Equalisation Scheme: The Tasmanian Freight Equalisation Scheme (TFES) is a scheme funded by the Commonwealth designed to compensate shippers for the freight cost disadvantage of transporting non-bulk commodities across Bass Strait. Eligible commodities include northbound goods produced or manufactured in Tasmania for sale on the Australian mainland and southbound goods used as inputs to production in Tasmania. The Scheme has been in place since 1976. The TFES provides an important means for Tasmanian industry to adjust to the additional costs of shipping goods across Bass Strait and also has an important effect on the competitiveness of the Tasmanian economy. It is estimated that the effect of the scheme adds $150 to $300 million to State GSP annually and provides for around 4,300 additional jobs. The TFES has contributed more than $1.1 billion in payments to industry since 1976-77 and paid $89.1 million in 2004-05. Bass Strait Passenger Vehicle Equalisation Scheme: The Bass Strait Passenger Vehicle Equalisation Scheme (BSPVES) is funded by the Commonwealth and compensates passengers travelling across Bass Strait accompanied by a vehicle. More than 99 per cent of payments through the scheme were paid to passengers travelling on TT Line

ferries in 2004-05, which has the effect of offsetting fares. The scheme has been in place since 1996. In 2004-05, subsidies of around $32.4 million were paid under the BSPVES. The Scheme is estimated to have had a substantial positive impact on passenger numbers crossing Bass Strait and to tourism in Tasmania since its introduction in 1996. TasPorts Ownership of Tasmania’s four major ports, the port at Triabunna, and the other minor ports was transferred to a single corporate structure, TasPorts, at the end of 2006. Amalgamation is expected to lead to greater efficiency of operations, more efficient use of available assets, and more strategic planning and investment compared to the previous structure under which the four major port companies competed for available freight. Bass Strait Islands Shipping services to King Island have been provided on a purely commercial basis for more than five years. Shipping services to Flinders Island and nearby inhabited islands are provided with the assistance of the Tasmanian Government through support funding to the shipping service operator. Services to the smaller inhabited islands would not be financially viable without Government support. 2.4.6. Conclusions, Key Issues and Challenges The major issues relating to Tasmania’s port infrastructure include: − Meeting demands of higher freight growth, including: efficiency of intermodal facilities to cater for larger freight volumes; capacity and efficiency of supporting road and rail links; and increased ship movements and impact on suitable channel infrastructure for navigation purposes, wharf infrastructure, handling equipment, and supporting freight handling areas. − Limited expansion opportunities around some ports. − Importance of maintaining the TFES and BSPVES in supporting cost-effective interstate industry and passenger access.

2.5. Airports Tasmania is currently experiencing a high

standard of interstate air services, with service p qp King Island Airport levels at a record high. The introduction of low- p q cost airlines has been a significant contributing Whitemark Airport p p factor in the increased availability and pp p p p p p decreased cost of interstate air transport. p p p Burnie o p Hobart is the major passenger airport, and has Airport Devonport q Airport p p experienced significant growth over the past p p p (qH p p p p five years. p p o p p p p q p While intrastate air transport is not a major p Launceston Airport (H passenger transport mode in Tasmania, it is a p p critical mode for access to and from the Bass p p p p p Strait Islands, including King and Flinders o p

Islands. p Hobart International p 2.5.1. Supply (H p Airport oq p p Tasmania has an adequate supply of p airport infrastructure, with four major q Airport p p o Aerodrome p airports, and a number of minor airports, p Landing Ground Heliport landing grounds and helipads (Map 10). (H (H (H

Details of each major airport’s ownership, Map 10: Location of Tasmania’s major and minor infrastructure and services provided at landing grounds outlined in Table 7. Hobart, Launceston, Devonport, Burnie, King Island and Flinders Island airports are serviced by Regular Passenger Transport (RPT) airlines. Interstate and intrastate services are provided by three domestic (Qantas, Jetstar and Virgin Blue), and five regional (Airlines of Tasmania, Island Airlines Tasmania, King Island Airlines, REX and Tasair) RPT airlines. Minor airports receive varying levels of General Aviation charter services for passengers and freight. The airports on King and Flinders Islands in Bass Strait are critical in meeting the essential intrastate and interstate access needs of Island residents. 2.5.2. Demand Tasmania is highly reliant on air services for interstate passenger and freight transport. As a state, Tasmania’s reliance on air transport for interstate access characterises it from most other states where alternative modes for interstate passenger and freight transport exist. While air services are not a key component of intrastate passenger transport in Tasmania, they are critical to meeting the essential transport needs of the King and Furneaux Islands communities. Passenger Over 80 per cent of Tasmanian passenger arrivals and departures are by air. The introduction of low-cost airlines has raised seat capacity to an all-time high with lower fares providing more affordable air transport options. Between 1994-95 and 2005-06, the number of seats available on Tasmania’s major air routes (Hobart and Launceston to Melbourne and Sydney) increased by around 72 per cent.

Table 7: Ownership, infrastructure and services, Tasmanian airports Airport Ownership Runway facilities Current services Hobart Hobart International One sealed main runway (2251m), suitable for Qantas, Jetstar and International Airport Pty Ltd (HIAPL) heavy jet operations, including limited operations to Virgin Airport under 50-year lease to international destinations (e.g. Boeing 747). Commonwealth. Optional 49-year extension. Launceston Australia Pacific Airports One sealed main runway (1981m), suitable for QantasLink, Jetstar Airport (Launceston) Pty Ltd. medium jet (e.g. Boeing 737) and limited heavy jet and Virgin under 50-year lease to (e.g. Boeing 767) operations. Commonwealth. Optional Two grass runways for light aircraft operations. 49-year extension. Devonport TasPorts Sealed main runway (1838m) suitable for turbo-prop QantasLink Airport aircraft up to about 35-seat capacity; possibly some light/medium jet operations. Grass secondary runway limited to aircraft below 5,700 kg maximum take-off weight (MTOW) (e.g. turbo-prop aircraft up to about 20 seats). Burnie Airport Burnie Airport Corporation Sealed main runway (1513m) suitable for turbo-prop REX Pty Ltd (private company, aircraft up to about 35-seat capacity. part owned by Burnie City Secondary runway, partly gravel, only suitable for Council). aircraft below 5700 kg MTOW in daylight hours. King Island King Island Council Sealed main runway (1585m). REX from Melbourne Airport (large turboprops) Two secondary gravel runways, one with sealed ends. Tasair from Devonport and Suitable for 35-seat turboprops. Burnie (smaller aircraft). Whitemark Flinders Island Council Sealed main runway (1718m). Airlines of Tasmania, Airport from Launceston and Secondary runway sealed at each end. Victoria. Suitable for turbo-prop aircraft up to about 35-seat capacity and regular use by aircraft below 5700 kg MTOW. Some night-time operational constraints.

Total airport traffic increased from just over 1.7 million passengers in 1995-96, to over 2.6 million passengers in 2004-05. − 80 per cent of passenger movements are through Hobart and Launceston. − Hobart International Airport is Tasmania’s major passenger and freight airport. Between 1994-95 and 2005-06, Hobart’s share of total passenger traffic grew from 49 per cent to over 58 per cent of total passengers (approximately 1.5 million passengers). Launceston remained steady at around 31 per cent (826,000 passengers). − Devonport and Burnie steadily declined, with Devonport currently handling less than 5 per cent of total passengers and Burnie less than 4 per cent (Figure 14).

1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000

200,000 0

94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 Hobart Launceston Devonport Burnie

Figure 14: Passenger numbers 1994/05 to 2005/06, major airports Freight While only about 1 per cent of Tasmania’s freight is carried by air, it is a critical mode for time-sensitive produce such as fresh and live seafood, fruit and vegetables and newspapers. During 2002-03, 5,516 tonnes of freight was exported by air from Tasmania to international destinations. Food and live animals (including seafood and fruit) accounted for 84 per cent of total freight (Figure 15). (Equivalent statistics for domestic airfreight are not readily available). Mail and airfreight are carried on most domestic flights from Hobart and Launceston. Australian Air Express provides dedicated airfreight services from Hobart and Launceston to all mainland destinations, with connections to international flights. 2.5.3. Performance

3.68 3.34 5.29 All of Tasmania’s airports are able 2.48 to accommodate higher volumes of 0.20 0.03 traffic without significant additional investment, assuming aircraft types 0.53

remain compatible with existing 0.05 infrastructure. 84.41 Table 8 shows revenue passenger

load factor and seat availability for Fo o d & live animals each major Tasmanian route. A Beverages & tobacco decrease in load factor between Crude materials, except fuels 2003-04 and 2004-05 may be Animal & veg. o ils , fats & waxes Chemicals & related products attributable to the larger number of Manufactured goods seats provided in the latter year. Machinery & transport equipment Misc.manufactured articles Co mmo dities & trans actio ns

Figure 15: International air freight exports, 2002-03

Table 8: Revenue passenger load factor and seat availability, major routes Hobart Launceston Devonport Burnie Melbourne Sydney Brisbane Melbourne Sydney Melbourne Melbourne 2002-03 Load factor (%) 75.0 78.5 NA 76.6 71. 9 65.6 59.1 Seats (‘000) 1,071 251 NA 1,145 135 163 148 2003-04 Load factor (%) 81.5 80.7 82.7 81.1 79.7 72.0 70.0 Seats (‘000) 1,154 257 92 690 125 156 125 2004-05 Load factor (%) 74.0 71.2 74.5 71.4 71.3 66.4 58.0 Seats (‘000) 1,312 500 213 859 349 165 157 2005-06 Load factor (%) 76.6 71.7 76.9 69.6 74.3 NA NA Seats (‘000) 1,263 571 193 960 237 NA NA

Bass Strait Islands Passenger numbers to King and Flinders Islands have declined in the past decade. While the impact of this decline on the commercial viability of air operations and the level of future services is unclear, it has had an impact on the ability of both King and Flinders Islands Councils to raise sufficient revenue to cover immediate and long-term funding requirements. 2.5.4. Investment Sustainable Funding of Local Airports The airports on King and Flinders Islands in Bass Strait are critical in meeting the essential intrastate and interstate access needs of Island residents. Both airports are owned and maintained by the respective local councils, and it is vital that each local council is able to maintain the airport to an adequate standard to cater for passenger services into the future. The sustainable maintenance of regional airports has been an issue since the Commonwealth Government handed back ownership of regional airport assets to the states and individual airports in 1998. Ongoing funding commensurate with the cost of maintaining these airports, including the cost of infrastructure maintenance and upgrades, was not provided at this time. Terminal Re-development and Expansion The Hobart domestic terminal building and car park recently underwent a $5 million dollar redevelopment. The final stage will see improvements to baggage security screening in line with Commonwealth Government requirements, and is expected to be completed by the end of 2007. A planned $8 million upgrade for Launceston including terminal redevelopment and improved security and parking measures, is expected to be completed within three years. A major overhaul of baggage and check-in facilities is expected over the longer term.

A $750,000 terminal upgrade has recently commenced at Burnie. 2.5.5. Policy, Planning and Regulation The Tasmanian Government does not fund airport infrastructure or directly subsidise RPT services. The Tasmanian Government recognises that airlines provide services to Tasmania on a commercial basis, and that airlines will make service and capacity decisions accordingly. The Government monitors aviation services to and from the State to ensure that services meet the access needs of the Tasmanian community, industry and visitors. It has a particular interest in monitoring services to the Bass Strait Islands (principally King and Flinders Islands) to ensure an appropriate level of service. Land Use Planning Tasmania’s two major airports at Hobart and Launceston are located on Commonwealth land and are subject to the planning processes under the Airports Act 1996 (Cw). Adjacent land is planned and managed by local government under the relevant planning scheme. The State Government has input via various statutory and non-statutory processes. The Tasmanian Government recognises the important role planning schemes play in protecting strategic airport land from encroachment by incompatible development. Airport Master Plans: Under the Airports Act 1996, the Hobart and Launceston Airports are required to prepare a 20-year Master Plan, outlining appropriate zoning and future land use and development intentions. Regulation All Tasmania’s major airports are licensed by CASA to receive RPT services. In July 2000, the requirement that operators be licensed by the Tasmanian Government as a pre-requisite for delivery of air services within Tasmania was removed from legislation. Currently the Tasmanian Government would only consider regulating air services in cases where the market fails to provide an appropriate service, and where it is in the public interest for that service to exist (for example ensuring the provision of RPT services to the Bass Strait islands). 2.5.6. Conclusions, Key Issues and Challenges − Overall, Tasmania’s airports are performing at an acceptable level. − The sustainable funding of the strategically important King and Flinders Islands airports is an issue over the medium to long-term. − Ensuring a strategic approach to transport and infrastructure planning in the context of Commonwealth land use planning processes applying to airport land, and State Government planning frameworks applying to adjacent areas, is an issue for some airports.

3. Energy 3.1. Electricity 3.1.1. Supply Electricity Generation Electricity generation in Tasmania is primarily derived from hydro-electric resources supported by wind and gas-fired generation. The total installed capacity of all power stations on mainland Tasmania is 2677.8 MW. The capability of the generation system in Tasmania is determined not only by the amount of installed generation capacity available to meet the load but also by the amount of energy available in stored water. The Tasmanian hydro-electric system has much greater installed capacity than is required to meet peak loads, in order to enable a higher proportion of rainfall to be captured in water storages. It is therefore energy constrained, in other words it is the amount of energy that can be produced over an extended period that is the critical factor rather than whether it can meet maximum demand at any one point in time. This is in contrast to thermal systems where maximum demand determines the amount of generation capacity installed. Hydro Tasmania owns 28 hydro-electric stations in Tasmania grouped across seven separate catchments. The total installed capacity of these power stations is approximately 2270 MW. With over 17,000 million cubic metres of water capacity, the total useable storage is equivalent to over 16 months of Tasmania's total electricity generation. The major catchments and their approximate installed capacities are: − Trevallyn/North Esk 95 MW − Mersey Forth 308 MW − Pieman 475 MW − King River 143 MW − Gordon/Pedder 432 MW − Derwent 515 MW − Great Lake 302 MW Tasmania currently has one wind farm in operation on mainland Tasmania, the Roaring 40s wind farm at Woolnorth in the State's north-west. Other wind farm developments are currently in the planning stage. The Woolnorth wind farm is proceeding as a staged development. Current capacity stands at 64.75MW. Stage one, with capacity of 10.5MW, was completed in August 2002, and comprised 6 x 1.75MW wind turbines. Stage two, with a capacity of 54.25MW, was completed in April 2004 and comprises 31 x 1.75MW turbines. Woolnorth wind farm supplies electricity directly into the Tasmanian grid via a purpose built 110kV transmission line. A gas-fired electricity generation plant located at Bell Bay in the State’s far north also provides additional generation capacity in Tasmania. The Bell Bay Power Station was converted from oil-fired to gas-fired generation in 2003 and consists of 2 x 120MW gas turbines and is owned by Bell Bay Power, a subsidiary of Hydro Tasmania. Another Hydro Tasmania subsidiary, Bell Bay Three, installed three additional gas turbine generator units totalling 95MW, near the Bell Bay Power Station in June 2006.

Table 9 details the power station assets on mainland Tasmania. Table 9: Power Stations on Mainland Tasmania Power Station Date(s) Turbines Capacity (MW) Commissioned Lake Margaret 1914-1930 7 8.4 Tarraleah 1938-1951 6 90 Butlers Gorge 1951 1 12.2 Tungatinah 1953-56 5 125 Trevallyn 1955 4 95 Lake Echo 1956 1 32 Wayatinah 1957 3 38.4 Liapootah 1960 3 83.7 Catagunya 1962 2 48 Poatina 1964, 1977 6 300 Tods Corner 1966 1 1.6 Meadowbank 1967 1 40 Cluny 1968 1 17 Repulse 1968 1 28 Rowallan 1968 1 10.4 Lemonthyme 1969 1 51 Devils Gate 1969 1 60 Wilmot 1971 1 30.6 Bell Bay 1971, 1974, 2006 2 steam, 3 gas 335 Cethana 1971 1 85 Paloona 1972 1 28 Fisher 1973 1 43.2 Gordon 1978, 1988 3 432 Mackintosh 1982 1 79.9 Bastyan 1983 1 79.9 Reece 1986, 1987 2 231.2 John Butters 1992 1 144 Tribute 1994 1 82.8 Parangana 2002 1 0.75 Woolnorth 2004 37 wind 64.75 Total 2677.8 Electricity Transmission Transend Networks is responsible for the State's electricity transmission network. The transmission system comprises a 220kV backbone network (bulk transmission network) that connects the main generation locations with the main transmission substations and major load centres. A network operating largely at 110kV (peripheral transmission network) provides connections to other load centres and general locations. Transend owns 2342 route km and 3537 circuit km of transmission lines. There are 31 transmission line circuits of 1464 km on 220kV, 68 transmission lines of 1993 km on 110kV and 2 transmission line circuits of 81 km at 88kV. All transmission circuits are overhead with the exception of two 110kV circuits, which are entirely underground, and four 110kV circuits that are partially undergrounded. Transend also owns 45 substations and 8 switching stations. These substations operate at voltages of 220, 110, 88, 44, 33, 22, 11 and 6.6kV.

Map 11: Tasmania’s Electricity Transmission System

Electricity Distribution Aurora Energy is responsible for mainland Tasmania's electricity distribution system. The Aurora owned distribution system consists of approximately 209,800 poles (excluding private poles), 26,636 distribution substations, 23,700 km of overhead powerlines and 1,600 km of underground cables. The backbone of the distribution system comprises approximately 14,998 km of overhead high voltage (44,000 volt, 33,000 volt, 22,000 volt or 11,000 volt) powerlines and 798 km of underground high voltage powerlines. These high voltage (HV) powerlines, referred to as HV feeders, supply approximately 26,636 distribution substations, which then transform the electricity to 240/415 volts, to distribute electricity at low voltage (LV) to most of Aurora’s approximately 250,000 customers. The LV distribution system comprises approximately 8,700 km of overhead and 800 km of underground LV circuits. However, there are a small number of HV customers with their own substations who take electricity supply directly at 22,000 volts or 11,000 volts. There are 16 major industrial (MI) customers that are either supplied directly from Transend's transmission substations or via dedicated distribution HV feeders. Power stations are connected to the 220 kV bulk transmission network at Farrell, Sheffield, Palmerston, Liapootah, Cluny and Gordon and to the 110 kV peripheral network at Sheffield, Palmerston, Trevallyn and in the Derwent area. The Bell Bay thermal power station is connected to the 110 kV bus at George Town via 110 kV radial circuits. The Woolnorth wind farm is connected to Smithton via 110 kV radial circuits. The main load centres are connected to the bulk transmission network at 220 kV. These are located at George Town, Chapel Street (Hobart), Sheffield (Devonport and Burnie) and Hadspen (Launceston and North-East areas). Other load centres and generation locations are connected via the 110 kV peripheral transmission network. Power transfers take place between the bulk transmission network and the peripheral transmission network via 220/110 kV auto-transformers at Sheffield, Burnie, Palmerston, George Town, Chapel Street, Farrell and Hadspen. The 110 kV peripheral transmission network provides transmission support to the 220 kV bulk transmission network. Basslink Basslink is a high voltage, direct current (HVDC) bipole electricity interconnector that links the Tasmanian and Victorian electricity networks across Bass Strait. Basslink allows Tasmania to participate in the National Electricity Market (NEM) by enabling the trading of electricity flows between Tasmania and the NEM. Basslink has a continuous rating of 480MW, but with system stability considerations is able to export up to a maximum of 600 MW of power from Tasmania to Victoria, and import a maximum of 300-480MW into Tasmania. Imports are constrained by the ability of the Tasmanian power system to cope with any sudden interruptions to Basslink, and depend, in part, on commercial arrangements with major users and a system protection scheme. The Basslink cable is approximately 360km long and extends from Loy Yang in Gippsland, Victoria, to Bell Bay in northern Tasmania. The 295km undersea cable component is the longest of its type in the world. Basslink began operating in April 2006.

Power system operation/control Unlike most commodities, electricity cannot be stored and must be produced in real time to match demand. System control refers to the real time management of supply and demand in the power system and the maintenance of system security. Since electricity must be generated in a continuous manner to satisfy consumers’ aggregate instantaneous demand, the load varies both over a 24-hour period and from month to month. The System Controller must manage the system so as to meet these load requirements. From the time of Tasmania’s entry into the NEM, the National Electricity Market Management Company (NEMMCO) has carried out the role of system control. NEMMCO system control activities include: − monitoring the operation of the power system; − controlling the input of electricity to meet the forecast system load so as to ensure that the integrity of the power system is maintained and the power system operates efficiently, reliably and safely; − scheduling and dispatching electricity generation to meet system loads; and − publishing regular short and medium term PASA reports. 3.1.2. Demand Load Forecasts Tasmanian forecasts are prepared by National Institute of Economic and Industry Research (NIEIR) and published in Transend’s Annual Planning Statement. Table 10 shows the forecasts for electrical energy sold, electrical energy generated and annual maximum winter and summer demand to 2020 as detailed in the Transend 2006 Annual Planning Statement.

Table 10: Electricity Demand Year Electricity Electricity Maximum Maximum sales GWh generated Winter demand Summer GWH MW demand MW 2005 10107.1 10674.7 1802.6 1366.6 2006 10344.4 10925.4 1875.2 1447.9 2007 10498.3 11087.9 1911.3 1479.6 2008 10709.2 11310.6 1936.6 1508.6 2009 10833.8 11442.2 1975.5 1526.9 2010 11067.8 11689.4 2002.4 1559.1 2011 11200.4 11829.4 2031.4 1578.7 2012 11346.2 11983.4 2061.2 1600.1 2013 11493.2 12138.7 2087.9 1621.8 2014 11624.8 12277.7 2130.8 1641.2 2015 11885.6 12553.1 2158.7 1676.5 2016 12051.3 12728.1 2181.0 1699.5 2017 12161.2 12844.2 2205.6 1715.8 2018 12282.2 12972.0 2233.7 1733.6 2019 12421.1 13118.7 2263.3 1754.1 2020 12566.9 13272.7 2292.7 1775.6 The NIEIR forecasts indicate 1.46 per cent per annum average annual growth in electrical energy use and demand from 2005 to 2020, and 1.62 per cent per annum

average increase in winter maximum demand and 1.76 per cent per annum average increase in summer maximum demand over the same period. These forecasts recognise the recent introduction of reticulated natural gas in Tasmania and the possibilities of substitution from electricity to gas for some consumers. Generation Capacity Figure 16 shows the degree by which generator capacity, including committed generator projects less largest unit (shown in pink), exceeds demand as described in NIEIR’s median-case, 10th percentile forecast for winter maximum demand.

Figure 16: Generation Capacity Figure 16 shows that there will be more than sufficient generating capacity to meet Tasmania’s maximum demand for the foreseeable future. The addition of 480 MW capacity through Basslink increases the long-term available capacity even further. Electrical Energy Capacity Figure 17 shows the excess electrical energy available as the difference between the median-case NIEIR forecast of energy generation needs and the energy capacity of existing and future committed generation. The electrical energy supply–demand balance also suggests that as long as average rainfall yields continue, adequate energy will be available in future years inclusive of Basslink imports. Extended low rainfall conditions would reduce the energy capacity significantly, despite the availability of Basslink for imports. Generation Developments There are a small number of additional generation developments being planned for Tasmania. Roaring 40’s have proposed a 129MW wind farm at Musselroe Bay in north-east Tasmania. The Musselroe Bay wind farm has obtained all necessary development approvals, however, is currently on hold, due to over capacity in the market for renewable energy certificates (RECs).

Alinta, which owns and operates the Tasmanian gas transmission network, announced in October 2006 that it has plans to build a gas-fired power station in the Bell Bay industrial zone. Alinta’s proposal is for a 203MW combined-cycle gas power station, with construction hoped to commence in mid-2007 and the power station operational by early 2009. Newood, an integrated timber-processing project located south of Hobart, also has plans to develop a biomass generator on site. The Newood proposal is for a power station of up to 50MW that would use wood residues from normal forest harvesting operations. While Newood has the necessary development approval to proceed, the proponents are seeking a determination on eligibility for RECs. A proposed pulp mill at George Town is expected to be a net generator of electrical energy when constructed, adding a further 50-60MW of supply capacity.

Figure 17: Electrical Energy Capacity 3.1.3. Performance The 2005 Competition Index provides an objective assessment of the advantages and disadvantages of undertaking business in Tasmania relative to the other Australian states and territories and, in some cases, New Zealand. According to the Competition Index, overall, energy prices in Tasmania are competitive compared with those in other jurisdictions. Tasmania is ranked second in the electricity price index behind New South Wales. However, Tasmania ranked seventh in the electricity reliability index, ahead of Queensland only. The Tasmanian electricity industry’s performance is monitored and reported upon by the Tasmanian Energy Regulator. The Regulator publishes an annual Tasmanian Energy Supply Industry Performance Report and the details provided in this section are taken from the 2004-05 report, published in December 2005.

The 2004-05 year saw a general improvement in performance in terms of supply availability in comparison to 2004-04. During 2004-05, overall system SAIDI (measure for duration of outages) decreased from 376 to 314 minutes and SAIFI (number of outages) decreased from 3.70 to 3.13. Generation Performance The key aspects of generation performance are availability, reliability and the adequacy of generating plant to meet generation requirements on an ongoing basis and, in the case of Hydro Tasmania, the adequacy of water storages (or hydrology). Information on these aspects has been compiled from entities’ performance reports for 2004-05, the System Controller’s annual report for 2004-05 and Transend’s 2005 Annual Planning Report. Generating plant cannot be expected to be always available for generation. The combined effect of planned, maintenance and forced outages is reflected in the availability factor, which expresses the loss in generation capacity (MWh) due to all outage causes. Hydro Tasmania reported its availability as 90.7 per cent for 2004-05, exceeding its availability target of 90 per cent. Hydro Tasmania’s performance on scheduled outages (planned and maintenance outages) remained at 7.8 per cent in 2004-05, which is comparable to that observed in other states. Performance on forced outages has decreased slightly to 1.48 per cent in the past year, outside the Hydro Tasmania declared target of 1 per cent. However, this remains generally below forced outage factors recorded in other states. There are a number of measures for assessing generation adequacy. The system load factor gives an indication of the consistency of the load on the system. The system load factor in Tasmania has remained around or above 70 per cent since 1996, with the 2004-05 load factor being close to 70 per cent. This reflects the higher than average load factor of major industrial load (primarily smelters) in Tasmania which constitutes a much higher proportion of total load as compared to most mainland states. The capacity factor is the ratio of total energy actually dispatched to the annual energy output if all installed generation were run at full capacity. Since Tasmania is an energy- constrained system, the capacity factor will be substantially lower than that for the capacity constrained states of the mainland. The capacity factor reported for 2004-05 increased slightly to 48.7 per cent. In reality, capacity factor is not an accurate measure of Tasmania’s ability to supply its electrical energy needs, as water storage is the determining factor in the total electricity that can be supplied, rather than installed generating capacity. Hydro Tasmania reports a number of reliability measures. Hydro Tasmania achieved targets of zero for all reported measures, including contribution to global unserved energy target of ≤ 0.002 per cent, number of low reserve notices and number of system emergency notices. Tasmania’s reliance on hydro generation leaves the State exposed to hydrological risk, that is, the risk associated with variations in rainfall. To some degree, Hydro Tasmania has mitigated this risk by developing a significant storage capability to support its generation facilities. However, history has shown that storages alone are insufficient to deal with this problem. This has been a major factor in the energy infrastructure developments in Tasmania over the past decade. Hydrological risk has now been mitigated by conversion of the Bell Bay thermal power station to pipeline natural gas and the installation of three gas turbine generators immediately adjoining, by the development of a large wind farm at Woolnorth Bluff and Studland Bay, and by direct

connection to the national grid through the Basslink sub-sea cable. Further developments in generation will further reduce the risk.

Figure 18: Hydro Tasmania’s energy storage and output as at 30 June Figure 18 clearly shows that Hydro Tasmania’s energy in storage at 30 June 2005 was at its lowest point for 10 years, while station output has grown every year since 1995. This is now above the firm generating capacity of 10,080 GWh. With the development of gas generation and Basslink, the concept of a firm generating capacity based on hydro yield is becoming less relevant. Transmission Performance The key aspects of transmission performance are availability, reliability, quality and security. Information on these aspects has been gathered from Transend’s performance report for 2004-05, the System Controller’s Annual Report 2004-05 and the 2005 Annual Planning Statement. The agreed performance targets (or baseline figures), together with Transend’s actual performance for the year to 30 June 2005, and a comparison with previous years, are given in Figure 19.

Figure 19: Transmission Performance Transend Percentage unserved energy has remained constant over the past four years in line with the improvement in system minutes off supply, if the impact of natural events outside Transend’s control is discounted. The annual trend of system minutes off supply fluctuates significantly from one year to the next, although it has been relatively constant over the last three financial years. Reliability performance, in terms of system minutes of unsupplied energy, can be adversely affected by single significant incidents, particularly on weakly “meshed” parts of the network. The increase in 2004-05 is due to 2 significant weather-related events. The availability of transmission components is measured in terms of the time for which the components are available, divided by the product of the total possible time and the number of transmission circuits being considered.

Figure 20: Performance Targets Transend In 2004-05, Transend met its performance targets for availability in all asset classes. Transmission line circuit availability reached its highest level since Transend has operated as a stand-alone network service provider, improving on last year’s performance, and transformer circuit availability was also the best performance on record. Capacitor bank availability also returned to high levels, being amongst the best annual performance Transend has achieved. The performance of distribution sites has generally declined since 2003-04 in the area of forced outages, though generally remains satisfactory.

Figure 21: Connection Sites’ Reliability 2003-04 Generally performance of connection sites’ reliability due to planned outages improved in comparison to 2003-04, although non-firm direct connection sites displayed a considerable increase in duration outage. There are no longer established targets for the maximum number or aggregate duration of planned outages, as the notification, flexibility and effective management of these outages generally significantly ameliorates their impact on the customer.

Figure 22: Connection Sites’ Reliability 2004-05 Figure 23 below shows instances when a firm connection site became non-firm due to system configuration during planned and emergency outages only. It does not include instances where the connection site becomes “non-firm” due to connection site load exceeding the “firm” rating with all equipment in service.

Figure 23: Instances where firm connection site became non-firm Generally, the performance, in terms of number and duration of times when firm connection sites became non-firm, improved markedly compared to 2003-04. The major issues faced by the end customer, regarding the quality of electricity supply, are associated with frequency and voltage excursions beyond the acceptable thresholds. A total of 9,743 (compared to 12,342 in 2003-04) frequency deviations were observed outside the normal frequency band, of which 14 (compared to 8 in 2003-04) were outside 1 Hz deviation from 50 Hz. Prescribed frequency standards specify the normal frequency band (49.85 to 50.15 Hz) that is acceptable for the system and the duration and circumstances in which the frequency is allowed to deviate from that frequency band. In the period 1 July 2004 to 29 May 2005 there were 9,743 instances when the frequency deviated from the Normal band, compared to 12,342 in 2003-04. The frequency was within the band for more than 99 per cent of the year. There were three instances when a frequency excursion extended beyond the relevant contingency frequency band stipulated in the Frequency Operating Standard. All occurrences were the result of load changes at Temco. For June 2005, NEMMCO recorded 31 instances where the frequency deviated from the Normal band. None of these instances resulted in the frequency excursion extending beyond the relevant contingency frequency band, however in 14 of these events the frequency was not restored to the normal operating band within the prescribed recovery time. During the period 1 July 2004 to 29 May 2005, voltage levels on the 220 kV and 110 kV buses were maintained within the required voltage range of +/-10 per cent of nominal voltage, apart from short fluctuations caused by events on the power system outside the control of the System Controller. Distribution Performance The key aspect of distribution performance is reliability. The four most common measures for distribution reliability are: − System Average Interruption Duration Index (SAIDI); − System Average Interruption Frequency Index (SAIFI); − Customer Average Interruption Duration Index; and − Monetary Average Interruption Frequency Index. The annual performance figures for each supply area category and for the overall system are given in Figure 24. These figures reflect the performance of the distribution system only and do not include interruptions caused by third parties or as part of a transmission system outage.

Figure 24: Reliability Measures 2004-05 Figure 25 shows the variation in system performance over the past five years. It indicates that both SAIDI and SAIFI can be quite volatile, with the 2003-04 performance appearing high. Whilst performance has improved compared to the previous reporting period, it remains in line with broad historical performance trends.

Figure 25: Reliability Measured 2000-01 to 2004-05 On the whole, Aurora satisfied the prescribed average reliability criteria. There was an improvement in system performance in 2004-05, with a System Average Interruption Duration Index (SAIDI) of 244 minutes, a significant improvement on 2003-04. There were two Major Event Days, which alone contributed 75 minutes to SAIDI. Removal of these days (very severe storms in the north of the State in early February) saw SAIDI at 170 minutes, close to the target value of 165.5 minutes. The System Average Interruption Frequency Index (SAIFI) target for 2004-05 was set at 2.02. The outcome was 2.25, or 2.09 with the effects of Major Event Days removed, a marked improvement on 2003-04. 3.1.4. Investment Significant investments have recently been made, and continue to be made, in the Tasmanian electricity sector. This section details those recent investments and future planned investments in electricity infrastructure. The most significant investment in financial terms has been the Basslink interconnector. Basslink was constructed at an estimated cost of around $850 million and commenced operation in April 2006. In 2003 Hydro Tasmania committed to a $208 million, 10-year upgrade and modernization program of its hydro assets, specifically targeting 11 of its 28 power stations. During 2005-06, Hydro Tasmania invested over $126 million in capital works. Of this, $84 million was invested in generating plant in order to increase the reliability of hydro assets. This included $21 million toward the refurbishment of one turbine at the Gordon power station. A second turbine at Gordon will be refurbished during 2006-07.

A Hydro Tasmania subsidiary, Roaring 40s, entered into a 50/50 joint venture with CLP Power Asia to develop and finance renewable energy projects in Australia and overseas. CLP invested $110 million to acquire the 50 per cent shareholding in Roaring 40’s. To the partnership, Hydro Tasmania contributed its wind farm assets at Woolnorth and Cathedral Rocks in South Australia. Stages 1 and 2 at Woolnorth, known as the Bluff Point wind farm, were built at a cost of around $120 million. Stage 3, known as the Studland Bay wind farm, is under construction and will add a further 75MW of capacity. Comprising 25 x 3MW turbines, commissioning is expected to be complete in the first half of 2007. Roaring 40’s have also proposed a 129MW wind farm at Musselroe Bay in north-east Tasmania. The Musselroe Bay wind farm has obtained all necessary development approvals, however, is currently on hold, due to over capacity in the market for renewable energy certificates (RECs). No capital cost estimates have been announced. Another Hydro Tasmania subsidiary, Bell Bay Three, installed 3 additional gas turbine generator units, totalling 95MW, near the Bell Bay Power Station in June 2006, at a capital cost of $50 million. Significant additional generation developments are also being planned for Tasmania. Alinta, which owns and operates the Tasmanian gas transmission network, announced in October 2006 that it has plans to build a $230 million gas-fired power station in the Bell Bay industrial zone. Alinta’s proposal is for a 200MW combined-cycle gas power station, with construction hoped to commence in mid-2007 and the power station operational by early 2009. Newood, an integrated timber-processing project located south of Hobart, also has plans to develop a biomass generator on site. The Newood proposal is for a power station of up to 50MW that would use wood residues from normal forest harvesting operations. While Newood has the necessary development approval to proceed, the proponents are evaluating the project economics and the likely value of any RECs. A proposed pulp mill at George Town is expected to be a net generator of electrical energy when constructed, adding a further 50-60MW of supply capacity. During 2005-06 Transend invested $97 million in capital works that have improved the reliability for the transmission system. The projects completed were: − 110 kV transmission lines upgraded: Waddamana–Bridgewater, Chapel Street– Risdon, Chapel Street–Creek Road–Risdon, Tungatinah–Lake Echo–Waddamana and Bell Bay–George Town; − replacement of three 120 MVA transformers at Chapel Street Substation with 200 MVA units; − a new 110 kV injection point at Mowbray; − a 22 kV supply point has been established at Hadspen Substation; − a new 33 kV distribution connection point has been established at Risdon Substation; − reconfiguration of the 110 kV layouts of Norwood and Scottsdale substations; − rearrangement of the Risdon, Bridgewater and Rokeby 110 kV transmission lines to provide a double circuit 110 kV connection at Lindisfarne Substation; and − installation of a 30 MVAr, 110 kV capacitor bank at New Norfolk Substation.

The range of major investments planned by Transend are shown in Figure 26:

Figure 26: Major Investments planned by Transend Aurora Distribution invested $134.4 million in capital works in 2005-06. Major projects included the Reliability Improvement Strategy and the Launceston and Hobart area supply upgrades. Aurora’s $25 million Reliability Improvement Strategy targets the 20 feeders that contribute most to poor system performance. In July 2005, work was completed on four major feeders, following the upgrade of 6 major feeders the previous year. The next phase of feeder upgrade will be implemented in 2006-07. The Launceston Area supply upgrade is aimed at increasing the reliability and security of the power supply to Launceston City and the surrounding areas. This project will establish eight new distribution feeders in association with construction of a new 22-kilovolt (22kV) distribution supply point at Transend’s Hadspen substation and also involves the construction of a new substation and transmission line at Mowbray for Transend. The Hadspen terminal substation Stage 1, which involves 6 distribution feeders, was commissioned in May-June 2006, as was the Mowbray terminal substation Stage 1. Work on Mowbray Stage 2 has already commenced. The distribution network was also reconfigured in the area during 2006-07 to ease pressure on the Trevallyn and Norwood substations and to improve supply reliability. The Hobart area supply upgrade is aimed at improving the reliability and security of power supplies to Hobart and to increase capacity for future load growth. Under this project, the distribution network will be upgraded from 22 kV to 33 kV. A new 33 kV connection point has been established at the Risdon substation, while work is underway to convert Aurora’s zone substations at Derwent Park, New Town and Claremont from 22 kV to 33 kV. The Hobart area supply upgrade is expected to be complete by June 2007. 3.1.5. Policy, Planning and Regulation Policy Energy plays a vital role in the achievement of the Tasmanian community’s goals, pursued by the Government through the State’s 20-year social, environmental and economic plan, Tasmania Together. The objectives of Government policy with respect to energy filter down from this plan and are further described in its 2004 statement on energy policy, Powering Prosperity. These objectives are to:

− improve the standard of living for all Tasmanians by ensuring that consumers continue to have access to energy supplied within a nationally competitive setting; − support economic development and employment by facilitating diverse supplies of energy which are competitively priced, and reliably and safely delivered; − position Tasmania as a leader in renewable energy technologies and expertise by pursuing the commercial opportunities arising from Tasmania’s unique natural resources, technical and business expertise, and industry base; − develop and deliver energy efficiency and conservation programs to strengthen Tasmania’s overall position and to diminish reliance on infrastructure based energy solutions into the future as consumption grows; − provide a framework for active participation in national energy markets and policy forums to ensure that the needs of the Tasmanian community are recognised and accommodated in the development of national energy policy settings and regulatory frameworks; − ensure that the State’s publicly owned energy businesses are well managed so that they continue to make a sustainable financial contribution to Tasmania’s public services; and − ensure that Tasmania's greenhouse gas emissions from the stationary energy sector are kept at a minimum, particularly through the continued development of renewable energy resources. The following statements of policy position explain the Government’s policy with respect to supplying Tasmania’s energy needs: Competitive Market Structures: Energy plays an essential role in building and sustaining a growing Tasmanian economy. The Government is committed to creating a favourable climate for economic development and investment by expanding and improving Tasmania’s energy choices and facilitating the competitive market structures that will provide secure, diverse and competitively priced energy. Developing Renewable Resources: Meeting Tasmania’s energy needs into the future will require the efficient and sustainable development of our world class renewable energy resources to their full potential. The Government will continue to actively facilitate the development of the State’s wind and other renewable resources in a manner that respects the environment from which they are drawn while being responsive to the community's energy needs. Low Barriers to Entry: The Tasmanian energy market has been designed to allow for participation in the NEM and to foster competition in retail and generation regardless of ownership. The Government will encourage the State-owned energy businesses to work with private partners where appropriate and will ensure that new entrants will not face any unfair barriers to entry. Light-handed Regulation: Tasmania recognises the advantages of a nationally consistent approach to energy regulation. The Tasmanian Government will continue to represent the State’s interests in the development of a national regulatory framework, and national energy policy outcomes that enhance the efficiency, competitiveness and reliability of energy provision throughout Australia. Robust Infrastructure: Appropriate transmission and distribution infrastructure and the maintenance of power system security are essential to the reliable delivery of energy to Tasmanian consumers. Through its participation in national policy development and

oversight of rule making bodies, the Government will contribute to the development of a regulatory framework that will deliver secure and reliable supplies of energy to all Tasmanians. Greenhouse Response and Emissions Trading: Greenhouse gas emissions from the stationary energy sector are the largest single source of emissions in Australia. Tasmania has a natural advantage in that the vast majority of its energy is generated from non-greenhouse emitting renewable energy resources. The Tasmanian Government will continue to represent the State's interests in the development of future national markets that develop as greenhouse abatement measures to ensure opportunities are maximised by industry, particularly through the introduction of a national emissions trading system. Policy development is undertaken primarily by the Department of Infrastructure, Energy and Resources’ Office of Energy Planning and Conservation and the Department of Treasury and Finance’s Market Structures Facilitation Branch, with support from the Departments of Economic Development, Premier and Cabinet, and Primary Industries and Water. Planning Power system infrastructure planning is undertaken through an integrated process. This process relies heavily on electricity industry participants, with support and oversight from governance, regulatory and advisory bodies at the state and national level. This section details the key bodies and mechanisms that comprise this integrated process for power system infrastructure planning. NEMMCO NEMMCO is both the market operator of the NEM, and operator of the power system that underpins NEM operation. NEMMCO’s responsibilities include delivering security and reliability of electricity supply, developing the market by improving efficiency, and coordinating power system infrastructure planning. With respect to power system infrastructure planning NEMMCO is responsible for publishing two critical annual documents: the Statement of Opportunities for the National Electricity Market (SOO) and the Annual National Transmission Statement (ANTS). The SOO and ANTS are key references for Australia’s electricity supply industry and a key input to investment decisions crucial to maintain the long-term reliability of the nation’s electricity supply. The SOO is published as part of NEMMCO’s obligations under the National Electricity Rules. The SOO is intended to be a source of technical and market data to provide relevant and useful information regarding opportunities in the NEM. The SOO reviews the adequacy of NEM electricity supplies to meet projected electricity demand over a 10-year timeframe, and assists market participants when assessing: − the future need for electricity generating capacity; − demand management capacity; or − augmentation of the power system to support NEM operations. Specifically the SOO must provide the following information: − projections of aggregate MW demand and energy requirements for each region; − generating capabilities of existing generating units and generating units for which formal commitments have been made for construction or installation;

− planned plant retirements; − a summary of network capabilities and constraints based upon transmission network Annual Planning Reports; and − operational and economic information to assist planning by current and potential generators and market participants. The ANTS is the outcome of NEMMCO’s annual transmission review. It provides an integrated overview of current and potential future national transmission flow paths (NTFPs). It includes a review of NTFPs, forecast constraints for NTFPs and options that are technically capable of relieving these forecast constraints. For the ANTS: − market simulations are used to forecast network congestion and identify the potential need for NTFP augmentations from a market benefits perspective; and − conceptual augmentations are developed in consultation with jurisdictional planning bodies (JPBs), taking information from their annual planning reviews into account. From this a prioritised list of NTFP and interconnector augmentation opportunities is developed, focusing attention on augmentations that may deliver a positive net market benefit. This priorities list of augmentation opportunities is then used to support the national transmission planning process by indicating where attention is best focused for further and more targeted investigations.. An important input to the SOO, ANTS and the national transmission planning process is the JPBs’ annual planning reports (APR). See below for details of the APR published by Tasmania’s JPB, Transend Networks. In addition to compiling the SOO and ANTS, NEMMCO is responsible for ensuring the availability of sufficient generating capacity, through administering the short-term and medium-term Projected Assessments of System Adequacy (PASA). The PASA is a comprehensive program of information collection, analysis and disclosure to electricity market participants that enables them to make decisions about available generation capacity, maximum demand and outages of system components for periods of up to two years in advance. The PASA process includes consideration of: − forecasts of power system load and energy consumption for the total power system plus reserve margin; − aggregate generation capacity availability; and − projected violations of power system security, low reserve or lack of reserve, and transmission network constraints that may affect dispatch of generation or load. Transend Networks In the Tasmanian context, Transend Networks plays a central role in informing NEMMCO’s planning and review activities as the State’s jurisdictional planning body. As required under the National Electricity Rules and its transmission licence, Transend is required to publish an APR. Transend’s APR is published to provide information about the Tasmanian electricity supply industry in respect to: − forecast electricity use and demand in Tasmania; − supply projections; − transmission system operation;

− location of existing or emerging transmission network constraints; − proposals for system augmentations; and − proposals for small transmission network assets. Information in the APR is in part based on outcomes of regular consultations between Transend and Aurora Energy Pty Ltd and an APR meeting. The information presented in the APR is focused on meeting the needs of the NEM. Transend also publishes the Tasmanian Annual Planning Statement (TAPS). This is published to provide information about the Tasmanian electricity supply industry that is additional to that provided in Transend’s APR. The TAPS focuses on issues of particular interest to the Tasmanian electricity supply industry and provides information about: − electricity supply industry structure; − an overview of the Tasmanian electricity supply industry and it’s ongoing development; − electricity supply industry performance; and − proposals for distribution connection point developments. Tasmanian Energy Regulator The Tasmanian Energy Regulator has a statutory responsibility under the Electricity Supply Industry Act 1995 (ESI Act) to establish and monitor proper standards of safety, reliability and quality in the supply of electricity, as well as the important function of protecting the interests of electricity consumers. As part of this role the Regulator publishes the Tasmanian Energy Supply Industry Performance Report, a comprehensive independent review of the service standards, quality, reliability and pricing of the industry in Tasmania. The Performance Report is designed to provide assurance to consumers of the ongoing integrity and capability of the industry and monitors the delivery of appropriate service for cost. It also performs a significant role in maintaining public accountability of energy entities within the State. Electricity supply industry performance is measured by comparison to codified minimum requirements, historical performance, appropriate interstate benchmarks and service level targets established under Price Determinations. Reliability and Network Planning Panel The Reliability and Network Panel (RNPP) is established by the Regulator under the Tasmanian Electricity Code (Code). The Panel comprises a Chairman, and four to eight members appointed by the Regulator for a period of up to three years. Members are broadly representative of those persons with direct interests in the reliability of electricity supply in Tasmania. The RNPP is required to: − annually monitor, review and report on the performance of the industry in terms of reliability of the power system and, in reporting, must have regard to the actual and prospective impacts on end-use customers; − annually, until interconnection date (the date on which Basslink enters into commercial operation), monitor, review, amend, substitute or replace the Tasmanian power system security and reliability standards;

− annually, from interconnection date until the second anniversary of the transition date (29 May 2007), monitor, review, amend, substitute or replace the Tasmanian determination on power system frequency operating standards; − on and from the second anniversary of the transition date, if requested by the Jurisdictional Co-ordinator, review and advise on the standards for the frequency of a network or networks located in Tasmania when the Tasmanian region or any part of it is isolated from the other regions in the NEM; − develop jurisdictional transmission planning criteria and, if requested by the Jurisdictional Co-ordinator, review those criteria; − if requested by the Regulator, review the economic cost effectiveness analysis of proposed network augmentation and other capital expenditure projects submitted by the distribution network service provider and, in undertaking a review the Panel must: assess whether the proposed option satisfies the regulatory test; and make recommendations to the Regulator on the options available to overcome a network constraint or inadequacy (including generation and demand-side options); − if requested by the Regulator and in accordance with terms of reference provided by the Regulator, review and report on matters concerning the power system or Code and make recommendations to the Regulator on changes to the Code and any other matters which the Panel considers necessary; and − if requested by the Jurisdictional Co-ordinator and in accordance with terms of reference agreed by the Regulator, review and report on matters referred to it in respect of the National Electricity Code or NEM in so far as they apply in or relate to Tasmania (or will do so after the transition date). The RNPP prepares annually its Reliability Review Report to satisfy its responsibilities with respect to monitoring, reviewing and reporting on electricity supply industry reliability performance. The Reliability Review Report provides an assessment of the outlook for power system reliability in the medium term (the following two years) and supports this assessment with factual data on the performance of the power system for the past financial year, and, where available, comparative data from previous years. The report draws on a number of reports produced by the electricity entities for the Energy Regulator. In delivering the Report the RNPP is required to consider: − how the power system has performed against the standards and targets for reliability at the different functional levels – generation, transmission and distribution, at the different service connection site categories and on a locational basis; − the medium term outlook for power system reliability and the influences that are likely to affect this outlook; and − the changes, if any that may promote the achievement of the objectives of the ESI Act and the Code as pertaining to power system reliability. 3.1.6. Conclusions, Key Issues and Challenges Joining the NEM, through the Basslink interconnector, and the addition of electricity generation from natural gas have diversified Tasmania’s electricity supplies, reducing reliance on hydro-electricity and increasing competition and customer choice. Further,

diversification has significantly reduced the hydrological risk associated with the State’s power system, increasing the security of supply. Participation in the NEM presents greater opportunities for growth for Tasmania’s State- owned electricity entities than would have been available had Tasmania remained isolated from the NEM. However, a key challenge will be consolidating within the new regime, as NEM participation brings with it a range of issues that need to be managed. The Tasmania energy sector has been opened up to competition and market forces, except in the natural monopoly areas of transmission and distribution systems. Retail contestability is being rolled out according to a well structured time-table, with full retail contestability for small customers still subject to a public benefits test. The plan by Alinta to invest in a new 203 MW gas generator in the Tamar Valley is evidence of the competition policy working. A key issue for Tasmania is Australian Government policy with respect to renewable energy. The lack of continued support for Mandatory Renewable Energy Targets from the Australian Government has created uncertainty over renewable energy developments. Furthermore, the lack of a carbon price is a significant disincentive to the further development of the State’s world-class wind resources.

3.2. Natural Gas 3.2.1. Supply Gas Transmission Alinta owns and operates the Tasmanian Gas Pipeline (TGP), Tasmania’s only gas transmission infrastructure. The TGP is a subsea and onshore gas pipeline system which transports gas from the Longford compressor station in Victoria, across Bass Strait to Bell Bay. Pipeline spurs extend to Port Latta on the State's north-west coast, and to Bridgewater in the south. The TGP includes 302km of subsea pipeline, the longest in Australia, and 432km of onshore underground pipeline. The current capacity of the TGP Longford - Bell Bay mainline is 47 PJ per annum, or 128 TJ/day, which could be increased to 57 PJ per annum, or 156 TJ/day, by the addition of compressor stations along the pipeline. Gas Distribution After running two tender processes, the Government selected Powerco as its preferred gas distributor. In negotiating development agreements, the Government and Powerco agreed to limit the initial stages (Stages 1 and 2A) of the distribution network to pass approximately 38,500 domestic and business premises. This agreed rollout is now well underway and is expected to be completed by mid-2007. Powerco’s natural gas distribution systems connect to the Alinta owned transmission system gas pipeline. Powerco commenced work on its distribution systems in Tasmania in May 2003 with the commencement of the design process for natural gas systems. The first stage of the project (completed in July 2005) involved laying 100 km of gas pipe in the urban areas of Hobart, Launceston, Longford, Westbury, Bell Bay, Wynyard and Devonport. The Stage 1 backbone network primarily supplies supply large/medium industrial and commercial customers, however, there is potential for domestic connection to those customers within close proximity of this network. Powerco is currently in Stage 2A of its network rollout in Tasmania. Stage 2A is intended to make gas available to approximately 38,500 of the State's smaller commercial and residential customers. Tasmania’s gas pipeline facilities are shown on Map 12. 3.2.2. Demand The project brief issued by the Tasmanian Government for the distribution and retail tender in 2001 states the expectation that residential penetration rates would increase from 5 per cent in the network’s first year to 47 per cent after 15 years. It was stressed that this was only a possible penetration scenario and actual penetration is highly uncertain and will depend on many factors. The actual experience of Powerco’s network after approximately one year of meaningful residential construction is that, at the end of July 2006, some 800 residential customers had been connected out of 21,107 properties fronting a live gas main, a penetration rate of 3.8 per cent. Therefore on a straight line-basis, the take-up rate is tracking generally in line with expectations.

Map 12: Tasmanian Gas Pipeline Facility Overview

Progress in connections (for both business and residential connections) so far has been: − May 2005 40 − October 2005 150 − January 2006 350 − April 2006 650 − May 2006 723 − June 2006 858 − July 2006 985 − August 2006 1181 Powerco has recently provided a list of its top 20 commercial customers (Table 10). This list covers the full spectrum of industry sectors. The actual levels of gas consumption have not been specified for reasons of commercial sensitivity. In addition, Bell Bay Power, Australian Bulk Minerals and Comalco consume gas through direct connection from the Alinta pipeline. 3.2.3. Performance The introduction of natural gas into Tasmania has improved the State’s energy cost competitiveness. According to the 2005 Competition Index Tasmania is ranked fifth in the gas cost index, ahead of Western Australia and Queensland (comparable price data were not available for the Northern Territory). The Tasmanian gas industry’s performance is monitored and reported upon by the Tasmanian Energy Regulator. The Regulator publishes an annual Tasmanian Energy Supply Industry Performance Report and the details provided in this section are taken from the 2004-05 Report, published in December 2005. With the gas industry in its infancy, measures have been established for future comparison. The Tasmanian Gas Distribution Code requires Powerco to provide an annual return on performance every year. This Code sets out a number of measures against which Powerco must report. These include technical, complaint and reliability based measures. The quantity of natural gas that entered Powerco facilities over the reporting period was 338 413 GJs, of which 334 818 GJ was distributed to customers. The total amount of natural gas delivered to customers is the equivalent of 93 GWh, or an average load of 10.6 MW, compared to electricity usage of 10 770 GWh and average load of 1 229 MW. Natural gas usage is thus relatively small as a proportion of total energy consumption. However, comparison to the 2003-04 consumption of 6 851 GJ or 2.02 GWh supplied by natural gas demonstrates the growth in this new industry. In 2004-05, 334 818 GJs of gas was distributed to customers, which is equivalent to 93 GWh. The total unaccounted for natural gas lost from the system over the year was 1 671 GJ (0.494 per cent of total natural gas distributed). Powerco received 146 complaints over the 2004-05 year, with the majority relating to the construction activity of Powerco’s subcontractors. Of these, 42 related to property or landscape damage and 22 to the noise of construction work. Powerco received 14 complaints relating to its distribution service, of which seven related to incidents where Powerco was not at fault. Three complaints related to the

detectable odour of natural gas, all of which resulted from deliberate generous odorant dosing of natural gas in pipeline commissioning. Two complaints related to loss of supply. Powerco’s key performance indicator for complaints is set at a target of less than 12 in the reporting year. Ongoing construction work of the distribution network has resulted in this target being significantly exceeded in 2004-05. However, seven reasonable complaints on the basis of Powerco’s distribution service is within the target. Powerco reports on a number of reliability measures, as required by the Code. These include details by incident of both planned and unplanned interruptions to supply. Four incidents resulted in loss or reduced supply in 2004-05. A total of 2 064 minutes of supply were lost. As with electricity distribution, natural gas distribution reliability is measured in terms of SAIDI and SAIFI. In 2004-05, Powerco’s distribution system had a SAIDI of 32.8 minutes and a SAIFI of 0.063. Given the infancy of the Tasmanian natural gas industry, comparison with previous years or other states is not yet appropriate, and these figures will show some volatility for the next few years. Powerco met its target of less than 0.5 per cent time off supply in each network it operates.

Table 10: Powerco Top 20 Commercial Customers Company Industry Sector (ANZIC) Location Amcor Fiber Packaging Paper Product Manufacturing Launceston Australian Weaving Mills Woven Fabric Manufacturing Devonport Ecka Granules Basic Non-ferrous Metal Manufacturing Bell Bay Tasmanian Alkaloids Other Chemical Product Manufacturing Westbury Blue Line Laundry Other Personal Services Hobart Boags Beverages Brewing Launceston Bonlac Dairy Product Manufacturing Wynyard Bradken Fabricated Metal Product Manufacturing Launceston Hobart & Cripps Nubake Bakery Product Manufacturing Launceston Impact Fertilizers Chemical Manufacturing Hobart Joe White Maltings Beverages Devonport Lactos Dairy Product Manufacturing Burnie Launceston General Hospital Launceston Hospital McKay Timber Timber Dressing Hobart R-Max Plastic Product Manufacturing Launceston Simplot Vegetable Processing Quoiba Tascot Templeton Textile Product Manufacturing Devonport Tasman Meats Meat Product Manufacturing Longford Tasmanian Mushrooms Other Food Manufacturing Spreyton Hobart & University of Tas Post School Education Launceston Zinifex Basic Non-ferrous Metal Manufacturing Hobart

3.2.4. Investment Since 2001, $550 million has been invested in the Tasmanian Natural Gas Project and related natural gas infrastructure, to bring natural gas from mainland Australia to industrial, commercial and residential users in Tasmania. The TGP, now owned by Alinta, was built by Duke Energy at a cost of Around $440 million. The State and Powerco agreed upon the Development Agreement (DA) for investment in the backbone natural gas distribution networks. Since that time there have been further industry developments by way of a development agreement (DA-2A) with Powerco, which builds upon the initial DA in respect to the ‘backbone’ distribution network. The DA-2A between Powerco and the State Government underwrites the roll-out of the distribution network beyond the backbone network past some 38,500 residential and small business customers by April 2007. The State Government has contributed $56 million in “seed-funding” for the development of the distribution network under for Stages 1 and 2A. The roll-out of the natural gas network has already extended beyond the initial distribution franchise sites and the areas included in DA-2A. Final investment in the distribution network for Stages 1 and 2A is expected to be in the order of $200 million. 3.2.5. Policy, Planning and Regulation The development of a natural gas industry has the potential to be a key driver of Tasmania’s future economic growth by offering commercial, industrial and residential consumers an alternative, competitively priced energy source. The key policy objectives with respect to natural gas in Tasmania are to: − facilitate the development of an efficient and competitive natural gas industry in Tasmania; − maximise the coverage of reticulated natural gas services throughout Tasmania in an economically efficient manner; − minimise costs to gas consumers; − enhance energy security for the State and consumers; − establish appropriate standards of safety, reliability and quality in the natural gas supply industry; and − establish a regulatory framework that maximises the long-term growth of the natural gas market in Tasmania, while providing sufficient regulatory certainty to attract investment and maintain the financial viability of the natural gas industry. The introduction of natural gas provides Tasmania with a major new source of energy, modal competition and customer choice within the Tasmanian energy market, as well as potential for increased economic and employment growth. The key elements of the Government’s policy and regulatory framework for gas distribution include: − the distribution network operating as an ‘uncovered’ pipeline, i.e. it is not regulated but the threat coverage will act as a deterrent to inappropriate distribution pricing; − no State-based regulation of gas distribution prices, with such prices determined by competition from competing fuel sources within the Tasmanian energy market; and

− the issuance of a non-renewable exclusive distribution franchise, limited to a maximum of 23 customers covered by Stage 1 of the project for a period of 7 years from the signing of the Stage 1 Development Agreement or 5 years after the completion of the backbone network, whichever is sooner. The key principle underlying Government policy in relation to gas distribution is that the distribution of natural gas is dependent on the successful sale of gas to consumers. In this regard, natural gas is simply one energy source within the Tasmanian energy market, competing against other forms of energy such as electricity, coal, fuel oil, LPG and wood. Therefore, it will be necessary for gas distribution access charges to be competitive within this energy market. In this environment, the gas distributor does not have market power within the overall energy market, even where it has an exclusive right to distribute natural gas, due to competitive pressure from other energy sources. 3.2.6. Conclusion, Key Issues and Challenges The arrival of natural gas has contributed to the diversification of the supply of energy in Tasmania. This will create opportunities for mode switching to reduce energy costs for industrial, business and residential energy consumers. There are also opportunities for downstream activities based on natural gas, such as Compressed Natural Gas and Liquefied Natural Gas. One of the major challenges for the gas industry will be increasing the penetration of natural gas in an energy market dominated by incumbent electricity entities. A key issue for increasing the penetration of natural gas is the development of the gas distribution network beyond the areas agreed by the Tasmanian Government and Powerco for Stages 1 and 2A. In summary, while some limited franchise arrangements are in place, the gas distribution market in Tasmania is largely a competitive one, with market outcomes determined by competition across the State’s energy sector. This arrangement contrasts with most other Australian jurisdictions where gas distribution is a regulated activity. However, it is considered that a competitive market will facilitate appropriate investment in the development of a gas distribution network while ensuring appropriate market- based outcomes.

4. Water 4.1. Sector Overview 4.1.1. Supply Metropolitan and regional water Local councils in Tasmania are responsible for potable water treatment and reticulation, sewage collection and treatment, stormwater management, water infrastructure and related catchment management issues. Some 28 councils14 supply treated and untreated water to their municipalities and own and operate the majority of water treatment and supply schemes. In the metropolitan area this is performed under the corporate bodies of three water authorities (Hobart Water, Esk Water and Cradle Coast Water) that supply bulk water to 18 separate municipalities. In total there are 90 water supply schemes in Tasmania. Only Hobart Water supplies to more than 50,000 connections. Table 11 provides information on the metropolitan water businesses and urban water and wastewater service providers, in terms of the number of connections and total volume of water. The conversion of council water rights previously established under the Local Government Act 1993, to water access entitlements under the Water Management Act 1999 (WMA), has for the first time given councils a volumetric entitlement. As with other water access entitlements, allocations have been made at various levels of surety. Water access entitlements for town water supply have been allocated at surety one (two thirds of the converted allocation) and surety five (one third of the converted allocation). Access to the surety five allocation is restricted when streamflows are insufficient to meet the needs of higher surety users (including the environment). The implementation of metering and two-part pricing for urban water schemes, where cost-effective, in accordance with the Commonwealth of Australian Governments (COAG) 1994 water reform framework has also driven efficiencies in usage and demand management across the State. Local government in Tasmania continues to provide educational and public awareness material in relation to the provision of water services. In addition to printed promotional material many Councils also maintain water conservation related information on their websites. The three bulk water authorities also undertake educational activities in relation to their responsibilities. The Department of Premier and Cabinet (DPAC) website consolidates information relating to urban water pricing principles and the objectives of water reform as they relate to councils. DPAC runs the Key Performance Indicator (KPI) reporting system for councils on an annual basis. KPI reporting provides the mechanism through which a range of policy, resource and service delivery areas can be reviewed, including infrastructure issues such as the reliable provision of a continuous supply of safe drinking water and equitable pricing. Demand management is covered through KPIs on water restrictions, system breaks, system losses and consumption.

14 Only one council, Tasman Council, does not undertake any commercial water and wastewater treatment activities.

Table 12: Water and wastewater service providers in Tasmania (GPOC 2005). Name No. of Connections Total volume of 50,000+ water supply Connections? (estimated ML) Metropolitan (Bulk) Water Suppliers 2002-03 Hobart Water 74 000 37,960 Yes Esk Water 33 435 14,089 No Cradle Coast Water 29 400 12,166 No

Urban water and wastewater businesses 2003-04 Break O’Day 2 852 140 No Brighton 5 355 305 No Circular Head 2 423 657 No Devonport 10 518 479 No Dorset 2 930 300 No Flinders 365 318 No Kentish 1 314 860 No King Island 515 336 No Latrobe 3 269 355 No Launceston 23 418 401 No Meander Valley 5 874 262 No Northern Midlands 3 510 589 No Sorell 1 960 391 No Southern Midlands 1 423 346 No Waratah-Wynyard 3 968 404 No West Tamar 7 486 282 No Burnie 8 504 586 No Central Coast 7 215 586 No Central Highlands 657 618 No Clarence 18 813 437 No Derwent Valley 2 992 451 No George Town 2 544 195 No Glamorgan/Spring Bay 3 463* 529* No Glenorchy 20 758 557 No Hobart 18 638 601 No Huon Valley 3 900 643 No Kingborough 9 313 420 No West Coast 2 946 543 No * 2002-03 figures. Glamorgan/Spring Bay did not provide a return for 2003-04.

Irrigation water The vast majority of irrigation water in Tasmania is sourced from unregulated streams or on-farm storages utilising privately funded infrastructure. Less than 10 per cent of irrigation water is currently sourced from publicly-owned infrastructure through formal irrigation schemes.

Unregulated water resources: The Department of Primary Industries and Water (DPIW) is responsible for the administration of the WMA. In administering the WMA, DPIW undertakes a range of water planning, management and regulatory activities to ensure the sustainable use and development of the State’s freshwater resources. These activities are associated with regulating the taking of water (ensuring that water users comply with conditions on their licence, including how much water is taken and when and how it is taken), and water assessments to monitor streamflows, water quality and river health. Activities associated with regulating the taking of water and assessment and monitoring are undertaken for both public and private good purposes. Under the WMA around 2,735 water access entitlements have been issued, providing allocations of 1,038,400 megalitres. Under the WMA, Hydro Tasmania holds a Special Water Licence that enables it to take water for hydro-electric power generation purposes. Hydro Tasmania holds the largest water licence in Australia, that provides for the taking of over 13 million megalitres per annum. Hydro Tasmania’s generating system consists of a network of 51 dams and 27 hydro-electric power stations. Irrigation schemes: Table 13 details the State’s current and proposed irrigation schemes. Ownership of three irrigation schemes: Cressy-Longford Irrigation Scheme (CLIS); Winnaleah Irrigation Scheme (WIS) and South East Irrigation Scheme (SEIS) is vested in the Rivers and Water Supply Commission (RWSC), which operate as a Government Business Enterprise (GBE). Management of both the CLIS and WIS has been devolved to local corporate entities that are required to operate the schemes on a commercial basis, with water prices set to recover at least the lower limit of the COAG pricing benchmark. The RWSC is also currently managing the Clyde Irrigation District. Water entitlements under the WMA for irrigators in two irrigation schemes managed by the Elizabeth Macquarie Trust will shortly be converted into irrigation rights under the Irrigation Clauses Act 1973. Once this occurs, the Elizabeth Macquarie Trust will be responsible for management of the water supply in the Lake Leake/Elizabeth/Macquarie River Irrigation District and Tooms Lake/Macquarie River Irrigation District. 4.1.2. Demand Improvements in farm productivity have been identified as being the key to the future of the Tasmanian agricultural sector. Irrigation development is the single-most effective way to improve Tasmanian farm productivity. Of all the States, Tasmania’s economy is the most reliant on agriculture, with 20 per cent of jobs stemming from agriculture. With more than half the value of all Tasmanian agricultural production coming from only 4 per cent of the total land farmed, the irrigated area, irrigation is critical to any significant productivity gains. According to independent analysis15, an additional 150,000 megalitres per annum of irrigation water (a 40 per cent increase on existing levels) is required to achieve the 10 year growth targets for agriculture. However, the availability of water for direct pumping from rivers and streams during summer is actually decreasing as the implementation of environmental flows and land use changes and climate change take effect. Tasmania has a competitive advantage as one of a very few States with the potential for additional water supplies to be taken sustainably in agricultural areas. Farmers and other

15 2005 Report by National Strategic Services Pty Ltd commissioned through the Water Development Plan

developers/investors will need confidence in the security and sustainability of water supplies to invest in agricultural development. The provision of additional, certain and sustainable supplies of irrigation water has been formally identified by both the State Government (through the Water Development Plan and the State of Growth initiative) and the private sector (e.g. Tasmanian Agricultural Productivity Group Strategic Plan, Tasmanian Farmers and Graziers Association 2006- 07 Budget submission) as a key factor in improving farm productivity and competitiveness.

Table13: Current and proposed irrigation schemes in Tasmania. Rural water delivery agency Number of Volume delivered Network Current status customers through supply supply area network (hectares) (Gigalitres) Cressy Longford Irrigation Scheme 132 7.3 14,667 In operation Winnaleah Irrigation Scheme 79 4 6,231 In operation South East Irrigation Scheme 164 2.8 15,077 In operation, managed by the Rivers and Water Supply Commission Clyde Irrigation District 28 7 51,750 In operation, managed by the Rivers and Water Supply Commission Lake Leake/Elizabeth/Macquarie River 35 10.5 45,300 Government is working Irrigation District with the Elizabeth Macquarie Trust to achieve self-management for the district Tooms Lake/Macquarie River Irrigation 20 9 39,300 Government is working District with the Elizabeth Macquarie Trust to achieve self-management for the district Meander Irrigation District approx 150 Maximum of 24GL 8,200 Proposed – Meander Dam once the Meander currently under Dam is operational construction by the Rivers and Water Supply Commission

4.1.3. Performance Bulk water providers (Metropolitan) Under the Government Prices Oversight Act 1995 (GPO Act), the Government Prices Oversight Commission (GPOC) is required to investigate the pricing policies of bulk water authorities (Hobart Water, Esk Water and Cradle Coast Water) every three years. The first investigation was conducted in 2001, the second in 2004. The next investigation will occur in 2007. The GPO Act will be amended shortly to require pricing investigations to be undertaken every five years. GPOC recommends maximum prices (which can include maximum revenues) and the Minister Assisting the Premier on Local Government subsequently issues a determination for each bulk water authority setting out maximum prices or revenues for three years after the Final Report is issued.

The past GPOC pricing investigations have found that the bulk water authorities are not charging monopoly rents and are achieving a positive rate of return on their assets, consistent with National Competition Policy (NCP) and Agricultural and Resource Management Council of Australia and New Zealand (ARMCANZ) Guidelines for full cost recovery, based on economic real rates of return and consumption-based pricing. Regional water and wastewater providers To facilitate appropriate pricing of urban water, urban water and wastewater pricing guidelines have been developed for local government. These guidelines are consistent with the COAG Water Reform Framework requirements and were developed by DPAC in consultation with GPOC. In February 2005, GPOC delivered its fourth annual report on councils’ compliance with NCP water reform obligations as they apply to urban water and wastewater services for the 2003-04 financial year (Local Government Water and Wastewater Businesses, Full Cost Recovery Compliance Review, 2003-04 Report). The 2005 audit of performance for the year ended 30 June 2004 found the same generally high levels of compliance by Tasmanian councils in both water and wastewater pricing. Given the high level of compliance with the GPOC Urban Water and Wastewater Pricing Guidelines, and the fact that the audit requirements are quite costly for councils, GPOC considers it appropriate that biennial audits now be conducted. Biennial audits will allow councils the opportunity to reflect the audit outcomes in their annual rate determinations and, in the cases of non-compliance, will allow an effective transition period to ensure future compliance with the guidelines. GPOC will conduct its next audit in 2007 for the 2006-07 year. 4.1.4. Investment Water Development Plan for Tasmania The Water Development Plan for Tasmania provides a strategic framework for sustainable water use and development. The Tasmanian Government launched the Water Development Plan in August 2001 and has since provided over $16 million in funding for the implementation of the Plan. This includes capital contributions made for the Meander Dam ($7 million) and East Coast town water supply infrastructure ($720,000). Through its consultation with stakeholders, the Government recognised that the greatest impediment to private investment in water development was the provision of risk capital necessary to progress larger scale proposals through the statutory approval stages. Hence, the primary focus of the Water Development Plan work has been to provide that risk capital to firstly determine the socioeconomic, engineering and environmental feasibility of suitable proposals, and then to take the most feasible proposals to the investment ready stage. The Meander, Wesley Vale and Headquarters Road irrigation developments are the main projects that have successfully been through the feasibility investigations and are now at, or near, the construction stage. Work undertaken through the Plan has also enabled additional water allocations to be made to support irrigation development in the Derwent Valley. Other key achievements under the Water Development Plan are the provision of long- term town water supplies for the major East Coast centres of Coles Bay and Swansea. These projects are in areas where water supply was seen as a serious impediment to further economic development.

Over the past three years, feasibility studies for around twenty selected water development proposals have been undertaken and funded through the Water Development Plan. A large proportion of these proposals have proved to be unfeasible for economic, environmental or engineering reasons. The identification of the “non- feasibility” of these projects can be considered a success for the Water Development Plan as the process adopted through the Plan effectively identified the various fatal flaws. This not only saved the private sector proponents considerable sums of money but also enabled them to focus on alternative water development projects. In addition to these specific projects, the Water Development Plan has funded: − a half million dollar upgrade of the State’s stream gauging and water quality monitoring system; − projects to improve on-farm water use efficiency and to model climate and rainfall on the East Coast; − a project to develop a strategy for the conservation of freshwater ecosystem values; − the Water Use Sustainability Project to formalise water entitlements; and − the continuation of the Irrigation Partnership Program. The Water Development Plan has provided an environment in which the Tasmanian farming sector has been confident, and actively encouraged, to invest in water. This is best illustrated by DPIW figures that show that over the last five years, the amount of water licensed for irrigation in the State has increased from around 250,000 megalitres to over 380,000 megalitres, an increase of over 50 per cent. Meander Dam The Meander Dam is the major initiative of the Water Development Plan and when completed will be Tasmania’s largest irrigation scheme with 24,000 megalitres of water available for irrigation. The Tasmanian Government invested over $1.5 million in bringing the project to the starting line for construction and invested a further $7 million of capital funding to purchase the public good benefits of the project. The RWSC are currently constructing the dam with completion due in late 2007. The Meander Dam Project Act 2003, providing for the implementation of the project, subject to existing permits and notices, passed through both Houses of Parliament in April 2003. On 18 September 2003, the Minister for the Environment and Heritage approved the construction and operation of the Meander Dam. This approval was subject to conditions, including the submission of management plans for the two nationally threatened species, the Epacris aff. exserta (Union Bridge) and the Spotted-tailed Quoll (Dasyurus maculatus), under the Commonwealth Environment Protection and Biodiversity Conservation Act 1999. An application for an Order of Review of this decision was filed in the Federal Court on 26 November 2003 on behalf of the Tasmanian Conservation Trust (TCT). The TCT’s action was discontinued in June 2004 following further scientific work that showed the plant species (now known as Epacris franklinii) has a widespread distribution, including several populations in South East Tasmania. Given that the plant is no longer listed as being threatened, the Commonwealth Minister has amended his approval accordingly. On 26 July 2005, the State signed a conditional Development Agreement with Tasmanian Water Solutions Pty Ltd. When the private sector consortium, Tasmanian

Water Solutions, was unable to reach financial closure, the Government took over the project through the RWSC in December 2005. In 2001, the estimated cost of the construction works alone was $23 million. Delays in progressing the project through the statutory approval process, including delays resulting from legal challenges at State and Federal level, have increased the estimated cost of construction works to $28 million, including $3.5 million for a mini-hydro scheme. Hydro Tasmania will meet the costs for the hydro generation plant and make a contribution to the capital costs of the dam. The State Government committed $7 million of capital funding for the project in 2001, with the Commonwealth agreeing to provide $2.6 million. The balance of funds will be provided by the private sector. SMART Farming The Tasmanian Government’s SMART Farming initiative, announced in the 2006-07 budget, provides $7.48 million over the next four years to continue the strong focus on maintaining confidence in the development of water dependent businesses. This funding will support the implementation of the National Water Initiative strategies by strengthening the security of water entitlements, ensuring the sustainable development of ground water, increasing the availability of surface water streamflow information and maintaining farmer and public confidence in the safety of dams. It also continues the Tasmanian Government’s strong encouragement of private sector water development to capture identified agricultural growth opportunities and support productivity improvement representing key components of Phase 2 of the Water Development Plan implementation. The second phase of the Water Development Plan funded through the SMART Farming initiative will focus on progressing clear market and demand driven water development opportunities. Such opportunities are most likely to be new small-to-medium sized infrastructure proposals such as on-farm dams, as well as maximising the efficiency of use of existing infrastructure and on-farm water usage. Specifically, the work is aimed at facilitating the capture of a large proportion of the additional 150,000 megalitres of irrigation supplies necessary to underpin the ten-year agricultural growth prospects. Funds will be provided for on-farm water planning, reinstatement of the Irrigation Partnership Program for environmental studies for farm dam proposals, feasibility studies for targeted water development proposals and incentives for sustainable water development. 4.1.5. Policy, Planning and Regulation The WMA provides the regulatory basis for the sustainable use and development of Tasmania’s freshwater resources. In implementing the Act, a range of activities have been undertaken to support the objectives of the WMA including a number of actions that promote and foster social and economic benefits from the development of the State’s water resources. Examples of actions include: − implementing the Water Development Plan for Tasmania and SMART Farming initiative; − establishment of the Statutory Assessment Committee for Dam Construction; − development of procedures and processes to enhance the dam assessment process; − development and implementation of statutory dam safety requirements;

− Tripartite Agreement on use of water in hydro-electricity districts developed between DPIW, Tasmanian Farmers and Graziers Association and Hydro Tasmania; − enhanced water trading arrangements; − support for local management of irrigation schemes; − support for the establishment of water districts; and − financial support to proponents of on-farm dams through the Irrigation Partnership Program and SMART Farming Initiative. A review of the current dam approval process is currently underway to ensure that it continues to meet best practices in planning and development assessments, as well as contemporary dam safety practices. This review will focus on the effectiveness of the statutory provisions in the WMA as well as the administrative processes undertaken by the DPIW and Assessment Committee for Dam Construction. 4.1.6. Conclusions, Key Issues and Challenges National Water Initiative Tasmania became a signatory to the Intergovernmental Agreement for a National Water Initiative (NWI) on 2 June 2005. The National Water Commission (NWC) has now accredited Tasmania’s NWI Implementation Plan and the State is progressing a range of actions to meet the requirements of the NWI. The NWI covers a wide range of water related issues and Tasmania’s NWI Implementation Plan provides detailed information for each of the 70 or so NWI actions and how the Tasmanian Government will implement the Agreement. The NWI builds on the previous COAG framework for water reform agreed to in 1994. Written advice from the Department of Prime Minister and Cabinet on 24 June 2004 confirms that Tasmania’s existing legislative and other arrangements are meeting the majority of the National Initiative’s requirements. This reflects Tasmania’s exemplary record in regard to sustainable water use and development as demonstrated by passing every water reform assessment by the National Competition Council over the last six years without penalty, including the final National Competition Policy assessment by the NWC in late 2005. Tasmania is the only State to have achieved this milestone. For many of the actions identified in Tasmania’s Draft NWI Implementation Plan it is business as usual; they are already undertaken through the State’s existing water management arrangements. This is extremely important as it provides certainty and security for our existing and planned water dependent businesses. There are, however, a range of actions required under the NWI Agreement that are not covered by Tasmania’s current activities. These include: − measures to identify and address water interception from large-scale land use changes such as the expansion of plantation forestry; − formal performance benchmarking for metropolitan and rural water delivery agencies; − developing consolidated water accounts; − urban water issues such as integrated water cycle management; and − innovation and capacity building to create water sensitive Australian cities.

Urban Water and Sewerage Tasmania’s urban and regional reticulated water and sewerage sector has not kept pace with the State’s strong economic progress in recent years and structural reform needs to be examined. The evidence suggests that strong leadership is required to ensure that the State’s water and sewerage infrastructure and service delivery is able to meet the State’s current and future environmental, social and economic needs. Accordingly, on 26 September 2006, the Premier announced the creation of a Ministerial Water and Sewerage Taskforce (the Taskforce). The Taskforce is comprised of the Treasurer (Chair), the Minister for Primary Industries and Water, and the Minister for Tourism, Arts and the Environment. The primary objective of the Taskforce is to identify ways of achieving major long-term improvements in Tasmania’s water and sewerage services and infrastructure, through a collaborative approach with local government. The Taskforce will: − conduct a high-level review to broadly assess the adequacy of Tasmania’s existing water and sewerage infrastructure and the nature and scope of investment required to meet needs into the future; − examine structural, regulatory and other institutional arrangements in Tasmania and in other jurisdictions with a view to identifying a recommended approach for Tasmania; − examine the likely financial and other impacts on key stakeholders (including local government and water users) and risks arising from changes to existing structural, regulatory and institutional arrangements; and − consult stakeholders, particularly local government, regarding options for a statewide water and sewerage plan.

5. Telecommunications 5.1. Sector Overview Tasmania’s market for telecommunications services is both small by national standards and located away from major mainland markets and from the trunk routes that service them. However, competition within the Tasmanian telecommunications sector is expanding. Until recently, Telstra and Optus provided almost all telecommunications services within the State, but with the rapid increase in demand for broadband services, a number of new providers have entered the market. The Tasmanian telecommunications market is characterised by the following: − comparable standard of services to those found throughout Australia; − fully digital at all points across the network; − four different Mobile Phone networks; − 65 per cent of exchanges are equipped with ADSL Broadband capability; − 14 of Australia’s 106 licensed Carriers operate in the State; − over 90 per cent of all telecommunications infrastructure is controlled by Telstra including the only route on and off the island; and − it represents approximately 2 per cent of the Australian Market. The Tasmanian Government has adopted a strategy that aims to facilitate the development of a more competitive telecommunications industry in the State by: − facilitating a more competitive telecommunications industry structure within the State; − encouraging new investment in broadband telecommunication facilities within the State; and − creating an environment conducive to content and application providers for innovative and value added services. On this basis, the government has invested in telecommunications assets, which can now be leveraged in cooperation with industry to provide improved broadband connectivity through the State and to the mainland. Telecommunications services, particularly broadband infrastructure and services, support economic growth, facilitate new business opportunities, and improve the State’s competitiveness in the global knowledge economy. 5.1.1. Supply Basic Services For the majority of Tasmanian locations, basic telecommunications infrastructure and services are both available and reliable. All of Tasmania’s exchanges are digital, with fibre CBD loops and trunks in remote areas. Mobile Phones Mobile telephone infrastructure in Tasmania is comparatively good, despite the island’s mountainous geography. The State has the following mobile phone networks: 1. Telstra’s CDMA (to be phased out in 2008)

2. Telstra 3G16 3. Telstra GSM 4. Optus; and 5. Vodaphone. Telstra’s CDMA network has the widest coverage, estimated by Telstra to include 97 per cent of the population and 54 per cent of Tasmania’s landmass, compared with around 13 per cent of Australia’s landmass covered nationally. It includes an almost continuous coverage link between the towns and cities on major highways including Hobart to Launceston along the Midlands Highway, and Launceston to Burnie along the Bass Highway. Telstra, Optus and Vodafone also have GSM phone networks in Tasmania. Telstra has the broadest coverage but all three cover the main population centres and some highways. General Packet Radios Services (GPRS) is an overlay to the GSM network giving Telstra Mobile customers similar coverage to the GSM network. Broadband Services Asymmetric Digital Subscriber Line (ADSL) is the most widely available broadband service in Tasmania. ADSL uses the existing copper telephone line to deliver an always-on broadband Internet connection without disrupting the telephone service. In October 2004, Telstra reported there were 1151 ADSL enabled exchanges in Australia, of which three per cent were in Tasmania. This rollout includes parts of Greater Hobart (central Hobart, Kingston, Howrah, Bellerive, New Town, New Norfolk, Glenorchy, Lindisfarne, Claremont, Bridgewater, Lauderdale, Sandy Bay) plus inner parts of Launceston, George Town, Devonport, Ulverstone, Burnie and Wynyard. In many locations, Telstra also offers a higher bandwidth, business-grade product, termed Business DSL (or BDSL), which uses Symmetrical High Bit Rate Digital Subscriber Line Technology to deliver speeds of up to 4 Megabits per second. Telstra’s BDSL roll-out in Tasmania was accelerated due to the Tasmanian Government and University of Tasmania’s Broadband for Rural Tasmania project, which funded the provision of services to 88 government and University of Tasmania sites in 46 Tasmanian towns. Corporate and Government Larger corporate and government users buy both basic services such as those described above and more advanced and data services. However, unlike residential and small business users, they generally negotiate contracts, which may deliver substantial discounts on the national retail price structure. Telstra’s position is that the level of discount relates only to the scale of the purchase. However, there is evidence to suggest that the level of competition at present has a substantial impact on the degree of discount able to be negotiated. Prices (or tariffs) for telecommunications services depend on the type of technology used and the locations of service provider of carrier infrastructure relative to the customer site. The difference in price between the metropolitan (short distance) and regional (longer distance) connections can be vast. This disparity between pricing in

16 Telstra 3G is a variant of Telstra GSM but requires new handsets).

geographic bands is of particular importance to Tasmania, as most areas in the State fall outside of inner metro-access bands. For basic services such as basic voice, ADSL and ISDN, infrastructure is generally located at the local exchange. For many advanced or corporate data communications services, infrastructure tends to be located in Hobart and tariffs are based on the distance from the customer site to Hobart. This applies for Telstra Frame relay, ATM and Wideband IP services among others. A small number of providers have points of presence for advanced or corporate-level services in Hobart, and in some cases also in Launceston. 5.1.2. Demand There are a number of drivers of demand for further strategic development of Tasmania’s telecommunications infrastructure including development of the eHealth, eLearning and eGovernment sectors. eHealth Tasmania has a proven ability to deliver exceptional outcomes in eHealth development. The State was selected by the HealthConnect Development Team as the first location for its national implementation of this world leading development. This selection was based on Tasmania’s eHealth industry commitment to the project, the high quality of connectivity across the health sector in Tasmania and the fact that the State’s small scale provides a contained and representative population for field testing eHealth developments. Tasmanian eHealth businesses are active in developing business solutions for pharmacies, hospitals and medical practitioners, safety solutions that improve the quality of care for patients and communications solutions that extend quality health care into the community. eLearning Tasmania has a large number of innovative ICT companies providing leading-edge content and systems software. These companies form partnerships to maintain a critical mass of expertise, skills and infrastructure and yet remain small enough to foster innovation, agility and flexibility. eGovernment The State’s eGovernment sector has developed innovative government processes, improved services and provided greater availability of information. Tasmanian industry is able to deliver quality, cost-effective solutions enabling transformation of service delivery through the use of new technologies. 5.1.3. Performance The Tasmanian Government has identified a number of issues impacting on telecommunications in the State. These include: − a lack of infrastructure based competition; − the low priority of the State in the deployment of Next Generation technology; − most Service Providers focus on the major cities; − wholesale pricing remains higher than the national average; and − a recent drop in service reliability.

The Tasmanian Government has implemented a number of strategies to address these issues such as providing seed investment in Next Generation Telecommunications infrastructure and focussing on telecommunications policies and strategy. The Government is also building partnerships with institutions, industry, communities and other levels of government across the State. The 2005 Competition Index found that Tasmania ranks sixth in telecommunications costs, ahead of Queensland and the Northern Territory, and sixth in telecommunications reliability, ahead of South Australia (the ACT was not included in this index). 5.1.4. Investment The Tasmanian Government has invested approximately $30 million in telecommunications assets with the intent that these be leveraged in co-operation with industry to provide improved broadband connectivity throughout the State and to the mainland. On the 19 August 2006 the Tasmanian Government issued a Request for Proposals seeking response from industry participants who wish to work in an exclusive Strategic Alliance with the Tasmanian Government to maximise the opportunity provided by the combination of both the Government owned on-island (TasGovNet) and the National Grid Australia (NGA) owned (Basslink) network infrastructure assets. The Tasmanian Government entered into a Revenue Sharing and Capacity Agreement with NGA to combine the two fibre assets, collectively known as the Connect Tasmania Core. The Government’s overriding objectives of the telecommunications strategy are to ensure the State realises the economic and community benefits from new broadband infrastructure by: − facilitating a more competitive telecommunications industry structure within the State; − encouraging new investment in broadband telecommunication facilities within the State; and − creating an environment conducive to content and application providers of innovative and value added services. The Government’s preferred model is for a single industry participant to; − provide a suite of wholesale services plus either provide and/or facilitate retail services. These services include dark fibre, transmission capacity, broadband access and telephony services. − offer wholesale services to other competitive telecommunications carriers, or, carriage service providers offering retail services, and may offer retail services directly and/or facilitate them through third party arrangements. At the same time, the Australian Government is progressing a major telecommunications initiative through its Connect Australia Program. The Tasmanian Government initiatives in developing and facilitating on-island and off-island telecommunications assets will be a key enabler for the State’s participation in the Connect Australia program. TasGovNet Currently the only service used over TasGovNet is the provision of gas telemetry to Alinta Pty Ltd and Powerco Tasmania Pty Ltd (gas transmission and distribution entities respectively). These are provided under a ministerial exemption from the requirement to hold a Carriers licence for an interim period.

The physical topology of the backbone section of TasGovNet forms a Y-shape starting at Five Mile Bluff to Rosevale where the gas pipeline connects to Port Latta in the west of the State and Bridgewater in the south. There are four extensions of the backbone section at present to points of presence (POPs) located in Burnie, Devonport, Launceston, and Hobart, with fibre tails to Sandy Bay and Mowbray Heights. The network employs a 24 single mode (ITU-T G.652 standard) fibre cable and 60 or 96 fibre cables from the gas offtake stations to the POPs. The transmission system provides a STM16 folded ring over the entire network, with subsidiary STM4 rings for the gas monitoring applications at the gas stations. This telecommunication network is capable of supporting a wide range of service features, and has been built with this as the objective and has the capability to provide point-to-point backhaul network services for both commercial customers and carriers.

Basslink As part of its Basslink inter-connector project, NGA has invested in a new fibre optic cable linking Tasmania and the mainland. The cable consists of six pairs of optic fibres of which four unlit fibre pairs are available to the Strategic Alliance through a Revenue Sharing and Capacity Agreement between NGA and the Crown. The cable runs from the Basslink Converter Station located at Loy Yang, in Gippsland, to the converter station at George Town, Tasmania. The physical topology of the Basslink consists of five primary sections, the undersea section that crosses Bass Strait between the Victorian and Tasmanian Transition Stations, the sections from the Transition Stations to the Tasmanian and Victorian Converter Stations, and the sections from the Converter Stations to the Loy Yang and George Town Substations. The Basslink fibre employs cut-off shifted single-mode (ITU-T G.654 standard) fibre cable Connect Tasmania Core In strategically combining the optical fibre assets of TasGovNet with Basslink, the Tasmanian Government has developed a major plank of the national telecommunications infrastructure, which in co-operation with industry, will provide improved broadband connectivity throughout the State and to the mainland. 5.1.5. Policy, Planning and Regulation The Tasmanian Government is taking all opportunities to support the creation and delivery across Tasmania of: − low-cost bandwidth for Tasmania's information intensive industries, new economy service sectors, education and health sectors, and for research and higher education, − a wider choice of competitive telecommunications services to Tasmanian homes, businesses, and schools, and − openings for new, emerging and niche telecommunications providers in the State to expand and innovate. The Government is doing this through: − seed investment in telecommunications facilities, − ongoing focus on telecommunications policy and strategy, and

− strong partnerships with the research and higher-education community, private and community sectors, and other tiers of government in the State. Within this context, the development of broadband infrastructure and services is a priority for the Tasmanian Government. Tasmanian Government Broadband Action Plan The Tasmanian Government Broadband Action Plan is centred on opportunities arising from the Government's investment in the TasGovNet optic-fibre backbone, and from the Basslink telecommunications cable. The Government's overriding objectives are to ensure that Tasmania realises economic and community benefits from new broadband infrastructure by: − facilitating a more competitive telecommunications industry structure within Tasmania; − encouraging new investment in broadband telecommunication facilities within Tasmania; − creating an environment conducive to content and application providers of innovative and value added services, and − securing capacity to support collaboration and research by Tasmanian higher education and research institutions. 5.1.6. Conclusions, Key Issues and Challenges Some of the key issues and challenges for the telecommunications sector in Tasmania are: − creating greater competition in the wholesale market and the provision of backhaul capacity and services; − attracting a more diverse mix of service providers to the State; − attracting to the State the deployment of Next Generation Technologies and services similar to those now rolling our in mainland capitals; − breaking down the dependency on access to government spending to attract new industry participants; − extending comparable services across the State to those found in the major cities; − extending services into remote areas of the State; and − educating communities and business on the benefits of Next Generation Technologies.