Bills Digest no. 69 2007–08
Infrastructure Australia
Bill 2008
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer and copyright details
Passage history
Infrastructure
Australia Bill
2008
Date
introduced: 21
February 2008
House: House of Representatives
Portfolio: Infrastructure, Transport, Regional
Development and Local Government
Commencement:
The day after Royal
Assent
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
To establish an entity,
Infrastructure Australia, to advise all levels of government,
investors, and infrastructure owners on matters relating to the
provision of infrastructure.
Infrastructure can be broadly categorised as economic or social
. Economic or physical infrastructure refers to ports, airports,
electricity generation etc. Social infrastructure refers to
schools, hospitals, libraries, universities etc. One difference
between the two categories is that, in general, the latter do not
produce services for sale in markets but rather are not-for-profit
service providers although this is does not always hold true.
Further, the distinction is not clear-cut. For example,
government-owned urban passenger rail entities usually considered
to be economic infrastructure are often required to undertake
community service obligations for certain groups. The Bill
stipulates that Infrastructure Australia will focus on transport,
energy, communications, and water infrastructure.
Responsibility for infrastructure in Australia is spread across
all three tiers of government and the private sector.
Responsibility for the funding and physical provision of
infrastructure lies overwhelmingly with the states and not with the
Commonwealth as is widely believed. Further, it is state government
trading enterprises not budget-funded state government agencies
that provide much of the electricity, water, urban transport, and
ports. These government trading enterprises fund investment from
retained profits and by borrowing, although some such as urban
public transport entities are often subsidised from the budget.
Much of the borrowing by government trading enterprises is
conducted through state government central financing bodies such as
the NSW Treasury
Corporation rather than by each government trading enterprise
raising funds on its own behalf.
The Commonwealth provides grants to the states and local
government to fund infrastructure but the states and local
government are responsible for its physical provision. Local
government also funds and provides infrastructure. The private
sector too is becoming increasingly involved in the financing,
construction and operation of infrastructure, for example, in areas
such as toll roads and electricity generation. Responsibility for
regulation lies mainly with the Commonwealth and the states. In
practice, the following pattern of responsibility has evolved
across the three tiers of government.
|
Level of
government
|
Economic
infrastructure
|
Social
infrastructure
|
|
Commonwealth
|
Aviation services (air
navigation etc)
Telecommunications
Postal services
National roads (shared)
Local roads (shared)
Railways (shared)
|
Tertiary education
Public housing (shared)
Health facilities (shared)
|
|
State
|
Roads (urban, rural,
local) (shared)
Railways (shared)
Ports and sea navigation
Aviation (some regional airports)
Electricity supply
Dams, water and sewerage systems
Public transport (train, bus)
|
Educational institutions
(primary, secondary and technical) (shared)
Community health services (base hospitals, small district
hospitals, and nursing homes) (shared)
Public housing (shared)
Sport, recreation and cultural facilities
Libraries
Public order and safety (courts, police stations, traffic signals
etc)
|
|
Local
|
Roads ( local)
(shared)
Sewerage treatment, water and drainage supply
Aviation (local airports)
Electricity supply
Public transport (bus)
|
Libraries
Community centres and nursing homes
Recreation facilities, parks and open spaces
|
Source: Richard Webb, The
Commonwealth Government s Role in Infrastructure Provision ,
Research Paper, no. 8, Parliamentary Library, Canberra
2003-04.
The Commonwealth s role in infrastructure provision takes two
main forms:
funding and framework policies. The Commonwealth funds
infrastructure through the Budget in the form of specific
purpose payments to the states (and local government) for
capital purposes, and through its trading enterprises. The most
important specific purpose payments by value are for roads, public
housing and schools. When one hears calls for the government
(usually meaning the Commonwealth) to provide more funding for
infrastructure, it is presumably specific purpose payments that
advocates have in mind although this is rarely stated.
Following privatisation, there
are relatively few Commonwealth government trading enterprises. One
of the main Commonwealth trading enterprises in terms of the value
of investment it undertakes is the Australian Rail Track
Corporation.
The Commonwealth s role in funding is relatively small compared
with state funding. For example, the Commonwealth provides grants
to the states and local government to build and maintain roads. In
2003 04, the Commonwealth provided only 21 per cent of government
funding of road related expenditure while the states provided 40
per cent and local government 39 per cent.[1]
The second way in which the Commonwealth affects infrastructure
provision is through framework policies. They are the regulations,
legislation and other policies that set the parameters within which
other governments and the private sector make investment decisions.
Examples are the National Access Regime introduced under
Part IIIA of the Trade Practices Act 1974, the
activities of the National Transport Commission in devising a model
rail safety bill whose provisions all the states will reproduce,
and involvement in setting strategic directions for industries (for
example, the establishment of a national regulator the Australian
Energy Regulator for the electricity industry). Other examples of
Commonwealth agencies that implement framework policies are the
Australian
Competition and Consumer Commission and the National Competition Council.
Framework policies affect the direction and strategies that other
levels of government and the private sector take with respect to
the provision of infrastructure even though no Commonwealth funding
may be involved.
Concern is often expressed that the level of investment in
infrastructure is too low. Arguments for additional investment are
premised on some concept of inadequacy . Clearly, there will always
be areas of need for additional investment. But need has to be seen
in the context of competition for limited investment resources.
In June 1996, the National Commission
of Audit reviewed the adequacy of infrastructure. The
Commission concluded that:
Overall measures of infrastructure are of limited
value in determining the adequacy of Commonwealth infrastructure,
or infrastructure in Australia generally, and are a poor guide to
future investment. A proper assessment of the adequacy and
condition of existing infrastructure can only be made on a
case-by-case basis, with new investment determined using rate of
return analysis of all the resource costs and benefits involved
(including externalities )
There is no evidence of overall infrastructure
inadequacy. There is no evidence that net pressures on Commonwealth
finances will emerge because of Commonwealth infrastructure
responsibilities
There is evidence of both shortages and excess
capacity for particular types of infrastructure within Australia,
reflecting demographic and technology pressures and poor past
investment and management. Data on infrastructure performance and
condition is limited, with maintenance expenditure data being a
particular problem.[2]
In 2001, the Australian Infrastructure Report Card Alliance a
group of major infrastructure stakeholders prepared a report on
infrastructure adequacy.[3] The report gave the following rankings (where A was very
good , B good , C adequate , D poor , and E inadequate ):
B: airports, ports and telecommunications
B-: electricity
C: gas, roads (national) and potable water
C-: roads (state) and
wastewater
D: roads (local) and stormwater
D-: irrigation and rail.
It is noteworthy that the areas where the Commonwealth had whole
or partial responsibility airports, telecommunications and national
roads ranked relatively highly. Areas of state government (and to a
lesser extent local government) responsibility were most in need of
remediation. As to the government/private sector responsibility
split, the picture was mixed. State enterprises ranked relatively
well for ports but poorly for rail. It was not possible to draw
conclusions for areas of mixed ownership/responsibility
(electricity) or which employed outsourcing to varying degrees
(state road construction, potable water etc.)
Based on the Australian Infrastructure Report Card, the then
Australian Council for Infrastructure Development (AusCID)
estimated that $24.8 billion was needed to bring infrastructure to
the A level.[4] The
breakdown of this amount was:
- electricity distribution, transmission and generation: $1.15
billion
- gas transmission and distribution: $2.6 billion
- water, sewerage and drainage: $3 billion
- roads: $10 billion, and
- rail freight and urban passenger: $8.06 billion.
AusCID did not say how it derived these estimates.
Engineers
Australia have also issued infrastructure report cards at the
state level.
The assessments of Australian Infrastructure Report Card
Alliance and Engineers Australia are engineering-based. They
therefore may not be a guide to the economic worth of additional
investment nor the sectors where new investment should take place.
For example, it does not follow that because a road is in need of
repair, it must be repaired because the money might be better spent
elsewhere.
In the second reading speech for the Bill, the Minster for
Infrastructure, Transport, Regional Development and Local
Government stated that the OECD ranks Australia twentieth out of 25
countries when it comes to investment in public infrastructure as a
proportion of national income. The implication seems to be that
Australia is underperforming when it comes to investment levels. It
could be argued that such comparisons are poor indicators of
whether a country is under-investing in infrastructure. First,
different countries have different infrastructure needs and so can
be expected to have different investment levels. Nor do such
comparisons take account of the quality of investment. Further,
such comparisons can be misleading because investment undertaken in
one country by a government business enterprise may be undertaken
by a private enterprise in another country. The latter country
would, by definition, have a smaller proportion of government
investment in infrastructure. In Australia s case, such
international comparisons do not take account of:
- the privatisation of government trading enterprises that
previously provided infrastructure (for example, National Rail
Corporation and Telstra), and
- the fact that the private sector now provides some of what was
traditionally considered public infrastructure such as roads,
electricity generation, airports, and rail. Toll roads are an
example.
The Institute of Public Affairs estimated the fall in government
capital formation that is attributable to privatisation:
the public sector has sold $115 billion of assets
to the private sector since the late 1980s This means that about 40
per cent of the apparent decline in public infrastructure spending
is a statistical illusion.[5]
This implies that, without privatisation, government capital
formation would have been in the order of six per cent of GDP,
which was the level late in the 1980s. Moreover:
The data [on government capital formation] are
further biased downwards by the way in which public-private
partnerships and capital spending by privatized business are
treated. Over the last decade and more, a sizeable and increasing
proportion of infrastructure spending, which in the 1980s would
have been undertaken by the public sector, has been undertaken by
the private sector.[6]
In short, after the data on government investment in
infrastructure are adjusted take account of private investment in
infrastructure that was previously provided by government,
infrastructure spending would not show a declining trend and may
well be increasing.[7]
A major issue in infrastructure provision is the regulation of
prices and rates of return that competition regulators impose on
infrastructure owners/providers. A key issue is whether such
regulation deters additional investment in infrastructure.
A characteristic of much infrastructure is its monopoly or
quasi-monopoly status. As such, it is subject to regulation by
competition authorities. The regulation of prices and rates of
return by competition regulators is a source of controversy for
both the Commonwealth and state governments. The Australian
Competition and Consumer Commission (ACCC) is the Commonwealth body
responsible for regulating prices and rates of return that entities
such as Telstra may charge. Areas subject to ACCC price
regulation/surveillance include the charges that Airservices
Australia levies for its services, aeronautical charges that the
leased airports levy for aeronautical services, telecommunications
(mainly Telstra), and container stevedoring.
The role that the ACCC and state regulatory authorities play has
come under attack from several sources including the head of the
Productivity Commission, Mr Gary Banks, and Professor Henry
Ergas.[8] The thrust
of their arguments is that excessive price and rate of return
regulation may provide short-term benefits to consumers but at the
cost of curtailing long-term investment. In a letter to the
Australian Financial Review, Mr Brad Page, the CEO of the
Energy Supply Association of Australia, complained:
What it means is that the competition regulator
effectively runs the capital programs for NSW transmission
businesses over the next five years [9]
The ACCC has defended its role by pointing to the investment
that has taken place despite regulation.[10]
Each state has established an independent competition regulator.
In Queensland s case, for example, it is the Queensland Competition
Authority (QCA). An example of the conflict between regulators
and infrastructure providers was the dispute over the rate of
return the QCA proposed to apply to expansion of the coal terminal
at Port Dalrymple. Prime Infrastructure, which proposed the
investment, initially said that the return was too low. The state
regulators, too, have defended their actions.[11]
It is difficult to know where the truth of these competing
claims lies. The editorial in the Australian Financial
Review on 15 March 2005 stated:
But the biggest impediment to infrastructure
investment has been rates of return dictated by regulators whose
main job is to prevent price gouging But raising rates of return
won t come by haranguing the regulators. They re doing the job they
ve been asked to do. What s needed is a policy change by
governments encouraging regulators to balance their emphasis on
protecting consumers with recognition of the need to invest in new
infrastructure.
As noted, the states are primarily responsible for the provision
of economic and social infrastructure. The Allen Consulting Group,
in a report titled Funding
Urban Public Infrastructure, examined the alternative ways
state (and local) governments can finance infrastructure. The
alternatives were:
- taxes
- user charges
- producer levies
- government debt, and
- Special Purpose Vehicles (SPVs) such as public private
partnerships (PPPs) and privately financed projects (PFPs).
The study modelled the gains (to
New South Wales) of each alternative. The gains were measured in
terms of the net present value of changes in gross state product
(GSP), and in the average number of jobs created annually over the
next 15 years from investment of $200 million annually for five
years. This allowed the alternatives to be ranked. They are, in
order of most favoured to least favoured:
- government debt
- SPVs
- residential rates
- aggregate state taxes/user charges, and
- producer levies.
The ranking of aggregate state taxes and user charges depended
on the relative importance placed upon output or jobs as an
indicator of economic outcomes: user charges are more favourable
for employment, while state taxes are more favourable for
output.
In short:
This analysis suggests a strong preference for the
use of approaches that match the cost to the community to the
benefits from the use of infrastructure which are obtained over
time that is, government debt and SPV arrangements.[12]
The report makes a case for additional long-term government
borrowing even if this means slowing the rate at which state
governments reduce net debt:
The case for the greater use of government debt is
strong. Public infrastructure typically involves long
lived assets and it seems rational that they should be financed
over time. The evidence provided in this study is that this funding
approach provided the macro-economic path with the highest gains
from infrastructure investment. Billions of dollars of economic
growth and many thousand of NSW jobs hinge on this. A relatively
modest detour in the path to debt elimination in NSW would enable
many increasingly essential infrastructure investments to be made
sooner. Building the economic base would make achievement of the
longer run goal of debt elimination by 2020 easier and reduce the
growing risk of a major infrastructure failure.[13]
This conclusion relates specifically to NSW. To test whether it
is true of the other states would require additional modelling.
The quote above suggests there should be a shift in emphasis in
fiscal policy, which entails greater emphasis on infrastructure
investment and less on net debt reduction, and that this shift
would facilitate debt reduction in the longer run. This raises the
question: how well placed are the states to make such a policy
switch and incur additional debt?
In aggregate, the states embarked on a process of reducing net
debt (measured by general government net debt as a share of GSP).
Thus, overall, the states are better placed to borrow than in the
past. But the situation is not uniform with some better positioned
than others.
As noted, the private sector has become increasingly involved in
the provision of infrastructure following privatisations. Public
private partnerships (PPPs) are another mechanism for the
delivery of infrastructure. PPPs take numerous forms and have
proved controversial for a range of reasons. A particular issue
related to PPPs is whether to use public or private finance. The
following summarises the issues.
The case for using private sector finance in PPPs has been put
as follows:
The importance of the finance element of privately
provided infrastructure lies in the incentive it can provide for
the performance of the infrastructure, and the disciplines external
financiers can provide on the delivery of projects to time and
budget. It is difficult to replicate the strength of these
incentives and disciplines within a conventional funding process
where all the risks of delivery reside with the government.[14]
Critics have claimed that PPPs involving private sector finance
should not be used because it is generally more expensive for the
private sector to raise capital through private capital markets,
than for governments to raise funds. However, critics of the
argument that public sector finance is cheaper claim:
It's a myth that governments have access to
'cheaper' finance to undertake projects: a government's ability to
borrow more cheaply is purely a function of its capacity to levy
taxes to repay borrowings. But, when it comes to raising finance
for a project, it's the risk of the individual project that
determines the real cost of finance. The difference between the
private and public sectors is that private-sector capital markets
explicitly price in the risk of the project into the sources of
finances. In the public sector, taxpayers implicitly subsidise the
cost of a project by bearing the risk of cost overruns, time delays
or performance failures, which are not priced into the government
borrowing rate.[15]
It has been claimed that when risks are factored into the cost
of government debt, the differential between the cost of government
debt and private debt in the case of a project with a guaranteed
revenue stream from government is only 15 basis points.[16] If so, it is difficult
to use the higher cost of funds argument especially if the benefits
of risk transfer outweigh the additional cost of private
finance.
The former Bureau of Transport and Communications Economics
commented:
The transfer of financial risk from lenders to
taxpayers provides no obvious benefit to society. The interest rate
differential [between government and private sector borrowings] is
therefore no indication that public ownership reduces the cost of
capital to society.[17]
There are several options available to the Commonwealth to help
fund government infrastructure projects. They include:
- expanding the scope of specific purpose payments to the states
for capital purposes
- the Hawke and Keating Governments, for example, funded public
transport infrastructure
- lending to the states
- this was the case in the past. But the states have established
their own treasury corporations to manage debt, and the
Commonwealth has long ceased borrowing on the states behalf
- increasing its own investment through government trading
enterprises such as the Australian Rail Track Corporation
- easing borrowing restrictions through the
Australian Loan Council
- in the past, the Loan Council limited state government
borrowing. But with fiscal consolidation in the states, Loan
Council arrangements emphasised transparency of public sector
finances, through financial market scrutiny of proposed borrowing,
to restrict borrowing to prudent levels, and
- facilitating changes that would ease impediments to private
sector borrowing for infrastructure
There are numerous impediments to private sector provision of
infrastructure. It is not just price/rate of return regulation that
concerns industry. For example, Mr Mitchell Hooke of the Minerals
Council of Australia has written:
Our principal concern is the delays, uncertainty
and mixed signals that result when jurisdictions overlap,
competition policies contradict each other and bucks get passed.
These hurdles can be overcome. There will be no shortage of sources
of infrastructure financing.[18]
Other impediments include inconsistent state regulation, the
cost and complication of providing documentation to government
agencies when tendering for projects, and the access
provisions of the Trade Practices Act 1974.
Uncertainty over the form that a carbon emissions trading system
will take may be discouraging investment in the electricity
generation industry.
On 28 February 2005, the Productivity Commission issued a report
titled Review of
National Competition Policy Reforms. The report examined, among
other things, further reform to the provision of infrastructure
services. In identifying a reform agenda:
the Commission has targeted areas that meet three
tests: being inherently national in character; offering the
prospect of significant gains; and likely to benefit from a
nationally agreed reform framework under the stewardship of CoAG or
another national leadership body.
Against these benchmarks, within the infrastructure area, it is
clear that further nationally coordinated reforms in the energy and
water sectors should continue to be a high priority. However, the
Commission considers that developing nationally coordinated reform
frameworks and programs for the freight transport and passenger
transport sectors would also provide a high return to the
community.[19]
The key points the report made are:
There are significant opportunities to improve the
efficiency of economic infrastructure through further
competition-related reforms.
The energy and water sectors remain priorities for
nationally coordinated reform. CoAG has already sponsored the
development of new reform agendas for each of these sectors. These
agendas should provide the basis for further performance
improvements, though much detailed policy development, and
leadership to overcome delays is still required. In addition:
- In the energy sector, there is a need to enhance the operation
of the National Electricity Market. Addressing regulatory
fragmentation and policy uncertainty in relation to greenhouse gas
abatement is also critical to the sector s future performance.
- In the water sector, a key challenge is to better integrate the
rural and urban water reform agendas and to achieve more effective
management of environmental externalities.
- In both sectors, the next phase of reform has effectively been
removed from current NCP arrangements. Progress would be
facilitated by the re‑instatement of effective independent
review mechanisms.
Two dimensions of transport infrastructure would
also benefit from the development of comprehensive reform agendas
at the national level.
- There is a need to work towards achieving an efficient and
sustainable national freight system that does not distort activity
in favour of individual transport modes.
- A national review of passenger transport would provide a means
to assess the impact of recent reforms and what is required to
achieve more cost-effective, accessible and environmentally
sustainable passenger transport services.
Although not a matter for collective action by
CoAG, further reform in the communications sector is of national
importance.
- Coordinated action to address anti‑competitive aspects of
broadcasting regulation identified in the National Competition
Policy s legislation review program is a short term priority.
- Prior to any sale of Telstra, the Australian Government should
conduct a comprehensive review of telecommunications regulation,
including assessment of: the merits of further operational
separation and an access regime for telecommunications content; and
whether current regulations adequately address concerns about
Telstra s entry into new markets.[20]
On 11
May 2005, the Australian Labor Party announced that it would
establish Infrastructure Australia if elected to government. On
2 August
2007, the then leader of the opposition, Mr Kevin Rudd,
reiterated this pledge, and said that Infrastructure Australia
would have three divisions:
- to deal with policy and regulatory issues, driving reform on
legal, tax, planning and infrastructure finance matters
- to audit the adequacy of the nation s infrastructure, identify
weaknesses and prioritise projects, and
- to evaluate the business cases of projects, project financing
options including PPP (Private Public Partnerships) and manage the
probity process.
The response to the proposal to establish Infrastructure
Australia has been mixed.
Infrastructure Australia Partnerships (including AusCID) the
peak body representing private sector infrastructure providers said
that the creation of Infrastructure Australia is an important step
forward in establishing key national infrastructure objectives and
developing a national plan for priority projects. Some construction
companies are reported as having welcomed the proposal to
streamline the approval of PPPs, and the Australian Logistics
Council is reported as supporting proposals to overhaul the rules
that discourage PPPs.[21] Mr Mitch King, chief executive of Lighthouse
Infrastructure, is
reported as saying that the government s plan is welcome but
that the main problem is the overambitious timing: a year to create
a list indicates it is not a real plan.
Engineers Australia said that is highly supportive of the
Federal Government s initiative to establish Infrastructure
Australia to bring about cooperation and cohesion for
infrastructure planning and delivery on an Australia-wide basis .
The
Energy Supply Association of Australia has questioned what
Infrastructure Australia's role will be in the electricity and gas
industries.[22] The
issue of potential conflicts of interest has been raised:
Albanese has deliberately set out to get people
who are involved in infrastructure provision, or whose businesses
need to use it, on his council. But you can see where the potential
for apparent conflicts of interest arise in this exercise. This is
particularly the case given that the government also wants
Infrastructure Australia to tell it what the best form of financing
for a particular form of project may be: public, private or some
combination of both.[23]
While the legislation is yet to pass through
Parliament, Minister Albanese has announced the appointment of
Sir Rod Eddington, formerly chief of British Airways, to head
Infrastructure Australia.[24] The announcement was welcomed by a range of
groups,[25]
although concerns were expressed in other quarters.[26]
$20 million has been budgeted over four years to establish
Infrastructure Australia and to fund its activities.[27]
Clause 3 contains definitions. They include
nationally significant infrastructure which is defined to include,
transport, energy, communications, and water infrastructure in
which investment or further investment will materially improve
productivity.
Clause 4 establishes Infrastructure Australia,
which will comprise a Chair and 11 other members (Clause
7).
Clause 5 contains Infrastructure Australia s
functions. They are divided between:
- the primary function [subclause
5(1)] which is to provide advice, and
- additional functions [subclause 5(2)].
Subclause 5(1) provides that
Infrastructure Australia will provide advice to the Minister,
Commonwealth, State, Territory and local governments, investors in
infrastructure and owners of infrastructure on matters relating to
infrastructure with respect to the matters set out in
paragraphs 5(1)(a) to (f). They
are:
- infrastructure needs and priorities [paragraph
5(1)(a)]
- policy, pricing and regulatory issues
[paragraph 5(1)(b)]
- impediments to the efficient utilisation of national
infrastructure networks [paragraph
5(1)(c)]
- options and reforms, including regulatory reforms, to make the
utilisation of national infrastructure networks more efficient
[paragraph 5(1)(d)]
- the needs of infrastructure users [paragraph
5(1)(e)], and
- mechanisms for financing investment in infrastructure
[paragraph 5(1)(f)].
Additional functions are set out in subclause
(5)(2) and include the power:
- to conduct audits to determine the adequacy, capacity and
condition of infrastructure, taking into account forecast growth
[paragraph 5(2)(a)]
- to develop lists (to be known as Infrastructure Priority Lists)
that prioritise infrastructure needs [paragraph
5(2)(b)]
- to provide advice on proposals to facilitate the harmonisation
of policies, and laws relevant to infrastructure
[paragraph 5(2)(c)]
- to evaluate proposals for investment in, or enhancements to,
nationally significant infrastructure [paragraph
5(2)(d)]
- to provide advice on infrastructure policy issues arising from
climate change [paragraph
5(2)(g)]
- to review Commonwealth infrastructure funding programs to
ensure they align with any Infrastructure Priority Lists
[paragraph 5(2)(h)], and
- any functions that the Minister, by writing, directs
Infrastructure Australia to perform [paragraph
5(2)(j)].
Clause 6 empowers the Minister to give
directions to Infrastructure Australia. Subclause
6(2) provides that when making directions, the Minster may
take account of decisions made by the Council of Australian
Governments. Subclause 6(3) provides that the
nature of the directions must be general, while subclause
6(4) provides that the Minister may not give directions
about the content of any advice that Infrastructure Australia may
give. Subclause 6(6) provides that directions are
not legislative instruments. The effect will be to remove the
directions from parliamentary scrutiny and disallowance functions
normally attached to legislative instruments.
Division 2 deals with the constitution and
membership of Infrastructure Australia. The Chair and the 11 other
members are appointed under clause 8. Members are
appointed by the Minister [subclause (8)(1)] and
the Minister must be satisfied that each member has knowledge of or
experience in a field relevant to Infrastructure Australia s
functions [paragraph (8)(2)(a)]. It is proposed
the Commonwealth nominate nine members [paragraph
(8)(2)(b)] of whom one must have knowledge of local
government [paragraph (8)(2)(d)] and three members are to be nominated by agreement
of the States and Territories. There is a proposed statutory
requirement [paragraph 8(2)(c)] that five members,
including the Chair, are required to have acquired their knowledge
through the private sector.
The appointments may not be for longer than three years
(clause 9), must be on a part-time basis (other
than the Chair who may, in the alternative, be full-time
[subclauses 8(3) and (8)(4)], and
remuneration is to be determined by the Remuneration Tribunal
(clause 11). A full-time Chair must not engage in
external paid employment without the Minister s approval
(clause 15). To violate this clause is one of the
grounds for the removal of the Chair, and provisions are generally
made for the termination of members who are unfit or
inappropriately absent (clause 18)
Clause 13 deals with the disclosure of
interests to the Minister, and provides that a member must give
written notice to the Minister of all interests that the member has
and that conflict or could conflict with the proper performance of
the member s functions.
Clause 14 deals with the disclosure of
interests to Infrastructure Australia.
Subclause 14 (1) provides that a member who has an
interest in a matter being considered or about to be considered by
Infrastructure Australia must disclose the nature of the interest
to a meeting of Infrastructure Australia. Subclause
14(4) provides that unless Infrastructure Australia
otherwise determines, the member must not be present during any
deliberation by Infrastructure Australia on the matter
[paragraph 14(4)(a)], and must not take part in
any decision of Infrastructure Australia with respect to the matter
[paragraph 14(4)(b)]. Subclause
14(5) provides that for the purposes of making a
determination under subclause 14(4), the member
must not be present during any deliberation of Infrastructure
Australia for the purpose of making the determination
[paragraph 14(5)(a)], and must not take part in
making the determination [paragraph 14(5)(b)].
Division 3 deals with meetings of
Infrastructure Australia. Clause 19 deals with the
convening of meetings. Under subclause 19(3) the
Chair:
- may convene a meeting [paragraph 19(3)(a)],
and
- must convene at least four meetings each calendar
year[paragraph 19(3)(b)], and
- must convene a meeting if requested, in writing, by three or
more other members or the Minister [paragraph
19(3)(c)].
The quorum at a meeting is to be 8 members (clause
21) (or less if a member has been excluded by a potential
conflict of interest and the operation of clause 14). With respect
to voting it is to be determined by a majority of the votes of the
members present and voting, with the person presiding having both a
deliberative and casting vote, where necessary (clause
22).
Under clause 25, Infrastructure Australia can
make decisions without meetings. There are conditions for the
operation of these provisions regarding matters such as notice
[paragraph 25(1)(c)] and records, and a member not
entitled to vote at a meeting is still not entitled to vote
regarding the particular proposals [subclause
25(3)].
Infrastructure Australia will present annual reports
(clause 26), and it is in these reports that
Infrastructure Australia will document any directions given by the
Minister about any additional functions [paragraph
5(2)(j)] and about their performance [subclause
6(1)].
Clause 27 establishes the position of the
Infrastructure Coordinator. The Infrastructure Coordinator s
primary function is to assist Infrastructure Australia in the
performance of its functions [subclause 28(1)],
but also any functions that the Minister, by writing, directs the
Infrastructure Coordinator to perform [subclause
28(2)].
Division 2 deals with the terms and conditions
of appointment of the Infrastructure Coordinator. Subclause
29(1) empowers the Minister to appoint the Infrastructure
Coordinator, by written instrument, on a full-time basis
[subclause 29(2)]. The conditions of the
appointment are comparable to the members of Infrastructure
Australia, with remuneration to be determined by the Remuneration
Tribunal (clause 32). Clause 34
deals with the disclosure of interests by the Infrastructure
Coordinator, and provides that the Infrastructure Coordinator must
give written notice to the Minister of all interests the
Infrastructure Coordinator has or acquires and that conflict or
could conflict with the proper performance of the Infrastructure
Coordinator s functions. Clause 38 allows the
Minister to terminate the appointment of the Infrastructure
Coordinator for several reasons including misbehaviour or physical
or mental incapacity [subclause 38(1)] or if the
Infrastructure Coordinator fails, without reasonable excuse, to
comply with section 34 (disclosure of interests) [paragraph
38(2)(d)]. The Infrastructure Coordinator cannot engage in
external paid employment without obtaining the Minister s approval
(clause 35).
Clause 39 permits the appointment of staff to
assist the Infrastructure Coordinator under the Public Service
Act 1999.
Infrastructure Australia has the potential to deliver benefits
particularly with respect to more harmonised regulation. For
example, according to the Minister, Infrastructure Australia will
develop nationally-consistent guidelines and principles for the
assessment of PPPs and standardise documents for tendering
processes.[28] The
idea seems to be to develop one set of guidelines to replace those
that each state and the Commonwealth have developed. More
generally, given that a goal of the Rudd Government is to reduce
business regulation, one would expect to see advice from
Infrastructure Australia as to how regulation, as it affects
infrastructure, might be reduced or rationalised. But what the
relationship will be between Infrastructure Australia and
regulatory bodies such as the Australian Energy Regulator, the
Australian Energy Market Commission, and state bodies such as
Essential Services Commission of South Australia is unclear. Nor is
the relationship clear between Infrastructure Australia and other
Commonwealth government agencies such as Treasury, which play a
role in developing policy that affects infrastructure.[29] It seems that there is
potential for duplication and overlap.
Other questions arise as to how Infrastructure Australia will
perform its functions. For example, the purpose of the audit is to
determine the adequacy of infrastructure taking account of forecast
growth. This is ambitious to say the least. As the National
Commission of Audit pointed out, a proper assessment of the
adequacy and condition of existing infrastructure can only be made
on a case-by-case basis. As it is, state government agencies,
government trading enterprises and private sector companies are
involved in identifying infrastructure needs and in assessing
projects. Presumably, Infrastructure Australia will not conduct its
own audit its own resources seem to be small for that but will have
to draw on these bodies assessments of adequacy and projected
demand. A risk with such an approach would be that the states have
an incentive to overstate their investment needs.
One of Infrastructure Australia s functions is to establish
infrastructure priority lists to create a pipeline of projects .
Presumably, Infrastructure Australia will develop criteria with
which to rank projects. This raises the question of what criteria
Infrastructure Australia will employ. In particular, will the
criteria include benefit-cost analysis that is, analysis of the
benefits and cost to society of undertaking investment projects
which is a widely-used device to rank projects? Further, will
Infrastructure Australia insist that all projects be subjected to
benefit-cost analysis? According to a press report, Infrastructure
Australia will review the rates of return expected on big
projects.[30] Even
if Infrastructure Australia decides that a project has high
priority, there is no guarantee that it will proceed. Whether a
project proceeds may depend, for example, on the outcome of the
deliberations of regulatory bodies as to rates of return and
prices.
Undertaking projects on the basis of priority could result in
some states and areas losing out to others. States whose
populations are growing rapidly and whose infrastructure needs are
also growing rapidly presumably would be the prime beneficiaries.
This could lead to tensions between the winners and the losers
.
The standardisation of tender documents and contracts to promote
best practice procurement and to expedite decision making would be
beneficial. The lack of uniformity in documentation is an
impediment to firms bidding for contracts. How far the process of
standardisation can be taken is unclear given the diversity of
projects.
Richard Webb
5 March 2008
Bills Digest Service
Parliamentary Library
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