Urban Infrastructure Finance and Management Edited by Kath Wellman Director Centre for Developing Cities ANZSOG Institute of Governance University of Canberra and Marcus Spiller Principal and Partner SGS Economics & Planning Pty Ltd Melbourne A John Wiley & Sons, Ltd., Publication ffirs.indd i 7/20/2012 11:40:37 AM This edition first published 2012 © 2012 by John Wiley & Sons, Ltd. Wiley-Blackwell is an imprint of John Wiley & Sons, formed by the merger of Wiley’s global Scientific, Technical and Medical business with Blackwell Publishing. 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Includes bibliographical references and index. ISBN 978-0-470-67218-1 (hbk. : alk. paper) 1. Infrastructure (Economics)–Finance. 2. Infrastructure (Economics)–Australia– Finance–Case studies. 3. Public works. 4. Urban economics. 5. Urban policy. I. Wellman, Kath. II. Spiller, Marcus. HC79.C3U723 2012 363.6068′1–dc23 2012009755 A catalogue record for this book is available from the British Library. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Cover design by Meaden Creative Cover image courtesy of iStockphoto. Set in 10/12pt Sabon by SPi Publisher Services, Pondicherry, India 1 2012 ffirs.indd ii 7/20/2012 11:40:38 AM Contents About the Contributors vii Preface xi Acknowledgments xv Abbreviations xvii Chapter Introduction Kath Wellman and Marcus Spiller Introduction 1 Global Challenges of Urban Growth, Climate Change, and Finance 3 Technological Change 6 Microeconomic Reform and Productivity 6 Australia as Case Study 9 References 11 Chapter Urban Management Principles and Instruments Lyndsay Robert Neilson Introduction 13 Urban Policy 19 Policy Implementation 27 Conclusions 50 References 51 Chapter Urban Infrastructure: Productivity, Project Evaluation, and Finance Kath Wellman and Frederik Pretorius Introduction 53 Which Investments Should Be Undertaken? 55 Infrastructure: On Efficiency, Effectiveness and Equity, Markets, and Further Economic Concerns 57 Criteria for Choice in Action: Nation Building for the Future 61 Assessing the Benefits and Costs: Project Evaluation 63 Financial Evaluation 63 Cost-Benefit Analysis 64 0001557342.INDD iii 7/20/2012 3:13:48 PM iv Contents Limitations of Cost-Benefit Analysis 65 A Case in Point: Questions about Project Evaluation in Practice 70 Further Methodological Challenges: Multicriteria Analysis 71 How Should the Investment Be Financed? 73 Forms of Financing 75 Capital Markets and Infrastructure Financing in Australia since the 1990s 78 Conclusions 80 References 81 Chapter Private–Public Partnerships: Transaction Analysis and the Case of Urban Motorways Frederik Pretorius, Sophie Sturup, and Andrew McDougall Introduction 83 A Private–Public Sector Participation Continuum 85 A General Framework for Analyzing Private–Public Partnerships in Infrastructure 86 The Melbourne CityLink: A First-Generation Modern Era Build-Own-Operate-Transfer PPP 97 Conclusions 118 References 119 Chapter Land Management and Planning Legislation Marcus Spiller Introduction 121 The Land Development Process 122 Planning Systems and Land Use Regulation 128 Overview of Good Practice Principles 145 References 148 Chapter Financing and Managing Urban Water Kath Wellman Introduction 149 The Urban Hydrological Cycle 151 Climate Change and Its Impact on Urban Water Management 153 Water Security: Balancing Demand and Supply 154 The Urban Water Industry 163 Financing Urban Water Utilities 170 The Financial Structure of Water Utilities 172 Conclusions 176 References 177 Chapter Financing and Managing Urban Energy Systems John Daley Introduction 181 Outline of the Chapter 182 0001557342.INDD iv 7/20/2012 3:13:49 PM Contents v Energy Systems, Energy Policy, and Governance 182 Energy Markets, Resources, and Supply Systems 193 Australia: Primary Energy Resources and Supply 196 Australia: Secondary Energy Supply and Retailing 199 Future Energy Systems 216 Conclusions 220 References 221 Relevant Websites 223 Chapter Financing and Managing Urban Transport Cameron Gordon Introduction 225 Urban Transport in Theory 226 Australian Transport Shed 228 Australian Transport Infrastructure 229 Australian Transport Modes 231 Australian Transport Policy Structures and Mechanisms 235 Australian Urban Transport in Detail 242 Conclusions 255 References 256 Chapter Principles and Systems for Coordination of Infrastructure Investment across Portfolios Marcus Spiller, Praveen Thakur, and Kath Wellman Introduction 259 City Shaping and Follower Infrastructure 260 ‘Predict and Provide’ versus ‘Creating the Future’ 261 Identifying Infrastructure Projects with ‘City Shaping’ Power 264 Designing Coordination Systems 270 Coordinating City Shaping Infrastructure 271 Coordinating Follower Infrastructure 275 Challenges 276 Planning and Governance at a Metropolitan Scale 278 Mission 279 Urban Metropolitan Governance 280 Role of the Australian Government 283 Conclusions 285 References 285 Glossary 287 Index 295 0001557342.INDD v 7/20/2012 3:13:49 PM About the Contributors John Daley is an energy economist with a 40-year background in industry, government, and consulting. He specialized in resources and energy sector policy and strategy, commercial project evaluation and risk mitigation, advising clients in the coal, petroleum, electricity, and natural gas industries. He has worked on climate change policy pertinent to the energy sector since the early 1990s. He is currently a Director of Businesscertainty.com Pty Ltd, a consultancy firm that provides advice to government and private enterprise on energy policy. Cameron Gordon is an Associate Professor of Economics at the University of Canberra’s Faculty of Business and Government and currently a Visiting Professor at the Imperial College of London Centre for Transport Studies. Professor Gordon has previously been a Visiting Professor at the University of Sydney Institute for Transport and Logistics Studies (ITLS) and a Visiting Fellow in Public Policy at the City University of New York (CUNY) Research Foundation. He has had prior academic appointments in Finance with CUNY and in Public Policy and Administration with the University of Southern California. Andrew McDougall holds qualifications in economics, finance, and planning. He has an extensive record of achievement in consulting, including formal evaluations of government programs; preparation of business cases for government funding; development of strategies and business plans for tourism facilities, cultural institutions, and community organizations; regional economic analysis and strategy development; and public policy research surrounding urban and economic competitiveness and strategies to maximize development potential within this context. He is a Principal and Partner of SGS Economics & Planning Pty Ltd. Lyndsay Robert Neilson has had a long career in government, academia, and the private sector in Australia and internationally, developing public policy and strategic plans for major cities (Canberra, Melbourne, Riyadh), including significant work on infrastructure planning. He was Chairman of the Group on Urban Affairs in the OECD and in Australia created the national Better Cities Program that helped transform the inner urban areas of Australia’s major cities. He established the Centre for Developing Cities at the University of Canberra. He has been Secretary of both the Department fbetw.indd vii 7/20/2012 11:39:39 AM viii About the Contributors of Infrastructure and the Department of Sustainability and Environment in the Government of Victoria, Australia. He is currently Managing Director of Neilson Associates Pty Limited which