Senate Estimates: Rural and Region Affairs and Transport Legislation Committee (Infrastructure Australia)
Monday, February 24, 2014
Senator RHIANNON: I have some questions for Infrastructure Australia. First I would like to thank you for the answers you provided on notice, and I want to flag that I want to explore some of the issues that came up in the financial modelling contained in the business case in the first instance to do with the East West Link. To take you to the question on notice that you provided to some of my questioning when we were last together, has Infrastructure Australia received a full business case from the Victorian government for the East West Link?
Mr Brennan : The answer that was given by Mr Deegan previously stands. We have not received any further information from the Victorian government about the East West Link project, and we have not received financial modelling or the cost-benefit analysis for the project.
Senator RHIANNON: So, you have the short-form business case but not a full business case. What is your general view of the business case? And is it adequate to make decisions of whether funding should or should not be allocated to the project?
Mr Brennan : The information we have received so far is not enough to give us confidence about recommending the project to the government. But we understand that—
Senator CONROY: How much information was provided? How many pages was the submission?
Mr Brennan : From my recollection it was about 40 pages, I think. It may have been longer than that.
Senator RHIANNON: So you are saying that the Victorian government did not really provide any real detail on the assumptions contained in the modelling?
Mr Brennan : That is right.
Senator RHIANNON: And that is the modelling that they are relying on to say that the project will recoup $1.40 rather than 80c for each dollar of taxpayers' money?
Mr Brennan : Our understanding is that the analysis has been done, but we have not been provided with it.
Senator RHIANNON: In your previous answer you mentioned the Victorian government's claims about the cost-benefit analysis. What are the different elements and assumptions in the modelling that enable these two different figures to be derived—the 1.4 to one and the 0.8 to one? Can you elaborate on that?
Mr Brennan : We were not given information about the assumptions that resulted in the different benefit-cost ratios. But the Victorian government claimed in the information that it provided to us that the 1.4-to-one benefit-cost ratio resulted from the application of wider economic benefits to the project, as opposed to the core economic benefits that the project delivers.
Senator RHIANNON: Could you elaborate on the difference between wider economic benefits and core economic benefits?
Mr Brennan : Typically, core economic benefits are benefits that flow to users and other people who benefit from the project directly as a result of the project. Wider economic benefits typically result from economic activity that is spurred as a result of the project but not directly related to the project itself—for example, agglomeration economies, where economic development happens around and because of a transport project.
Senator RHIANNON: Is it true that the larger figure came from an assumption of the complete closure of the West Gate Bridge and the costs associated with such a closure if the East West Link was not operating? Was that an assumption?
Mr Brennan : I am not aware of the assumptions.
Senator RHIANNON: So you have not heard that scenario as being part of it?
Mr Brennan : No.
Senator RHIANNON: How does the modelling for the cost-benefit compare with what is normally used by Infrastructure Australia? Were you in a position to make that comparison? Did you have enough information?
Mr Brennan : No.
Senator RHIANNON: Therefore, you have not been able to test it against how you usually make decisions?
Mr Brennan : That is right.
Senator RHIANNON: So, is this the best practice? Is this what you expect when you are approached to consider providing funding?
Mr Brennan : What we expect, what we would like, is to have access to all the information that has gone into a project's development, which typically would include the details behind the benefit-cost analysis, including modelling, forecasting and estimating. We do not routinely receive all that information immediately; that is usually developed as projects develop. And in this case we have not yet received the information from the Victorian government about that.
Senator RHIANNON: Can you provide the committee with a copy of the business case provided by the Victorian government to Infrastructure Australia?
Mr Brennan : I understand that the Senate asked for that document to be tabled. A response was sent back to the Senate requesting that the document not be tabled because the East West Link project is in the process of procurement, and the Victorian government's view was that public release of that document would prejudice value for money being able to be achieved through the procurement process.
Senator RHIANNON: That was the Victorian government's request?
Mr Brennan : That was the Victorian government's request to us, and we passed on that request to the Senate.
Senator RHIANNON: Before we move on to WestConnex, I have just a general question. Is Infrastructure Australia aware of any recent urban motorway developments—let us say over the past decade—that have led to measurable reductions in congestion?
Mr Brennan : It is not the sort of research that we undertake.
Senator RHIANNON: When considering there is a number of projects before you that are major urban motorways, wouldn't you be looking at whether this is a model that is successful in dealing with congestion? Is that something that should be considered?
Mr Brennan : Indeed, Senator. Our approach is to seek the project proponents to demonstrate how the benefits will flow. Typically congestion reduction and reduced travel times are a component of benefits to come from motorway projects. Our typical requests to project proponents is they demonstrate how those congestion reductions will be maintained over time.
Senator RHIANNON: Moving on to WestConnex, can you confirm that the document West Sydney's Next Motorway Priority, dated October 2012, that was tabled in the Senate on 23 December last year in response to an order for the production of documents is the only document that has been received by Infrastructure Australia in relation to the WestConnex project?
Mr Brennan : I would have to take that on notice.
Senator RHIANNON: If you could take that on notice, please. Has Infrastructure completed its own economic analysis in terms of the cost-benefit ratio of WestConnex, or do you rely entirely on those figures presented to the New South Wales government submission?
Mr Brennan : Our process is to analyse the cost-benefit analysis that the project sponsor provides to us, so we engage analysts to test the assumptions and the parameters that are used in cost-benefit analyses to give ourselves confidence that the cost-benefit analysis is robust.
Senator RHIANNON: Does that mean that you have tested their cost-benefit ratio which comes in at 1.5 to 1—is that what you have done?
Mr Brennan : My understanding is that we have not received a detailed cost-benefit analysis on the WestConnex project, but I will take that on notice to confirm that is the case.
Senator RHIANNON: Do you know if that ratio, the 1.5 to 1, is based on wider economic benefits or not?
Mr Brennan : I don't know, Senator.
Senator RHIANNON: Do you mean that you were not provided that by the New South Wales government or you need to take it on notice?
Mr Brennan : I need to take that on notice and see what we have been provided with.
Senator RHIANNON: Thank you. Do you have any information from the New South Wales government pertaining to the modelling of the benefit-cost ratio?
Mr Brennan : I will take that on notice, senator.
Senator RHIANNON: When you take that on notice, could you also take this on notice, please: if that benefit-cost ratio of 1.5 to 1 is based on the assumed wider economic benefits, is it fair to assume that the ratio excluding those benefits is substantially lower?
Mr Brennan : That is not an assumption I would make, Senator.
Senator RHIANNON: That is not an assumption. So what we saw with the East-West is not necessarily always the case?
Mr Brennan : No.
Senator RHIANNON: Thank you. What is the difference between the methodology and the stock-standard methodology used to arrive at the lower figure? If I could ask it in a more general sense: could you outline the methodology that is used here to arrive at this cost-benefit analysis?
Mr Brennan : It is a very technical process. We bring in skilled economists to test the analysis that is provided. I would not like to hold out to the Senate that I could outline the technical details but, in general terms, it is the direct cost and benefits of the project that apply to users of the project and people who are directly impacted by the project; whereas the wider economic benefits tend to relate, as the name suggests, broader economic costs and benefits that are associated, but not directly associated, with the project.
Senator RHIANNON: Are you confident that the New South Wales government and the Victorian government follow that methodology when they are preparing their cases for these respective motorways?
Mr Brennan : I could only be confident if I had underlying information which formed the basis for their calculations, and we do not have that.
Senator RHIANNON: You do not have it in the case of WestConnex or East-West?
Mr Brennan : I am not sure about WestConnex. I am confident about East West.
Senator RHIANNON: So can you take it on notice about WestConnex?
Mr Brennan : Yes.
Senator RHIANNON: Thank you. Since the last Senate estimates, has the federal government sought Infrastructure Australia's advice on either the East West Link or WestConnex?
Mr Brennan : The Commonwealth government?
Senator RHIANNON: Yes, please.
Mr Brennan : Not to my knowledge, although I will take that on notice as well.
Senator RHIANNON: If they have sought information from Infrastructure Australia, has that been since the resignation of Mr Deegan in February this year? So I am looking for a date on seeking that advice.
Mr Brennan : I am not sure whether we have received it, so I will take that on notice as well.
Senator RHIANNON: Thank you. Does Infrastructure Australia have any concerns regarding traffic projections for the WestConnex, which obviously would significantly impact on the estimated benefit-cost ratio?
Mr Brennan : We do not have the information which would lead us to be confident or not confident about that.
CHAIR: Could I just interrupt: Senator Sterle would like some clarifications.
Senator STERLE: Thank you, Chair. On your line of questioning, Senator Rhiannon, where you asked Mr Brennan about Mr Deegan's resignation, has he formally resigned yet?
Mr Brennan : Not to my knowledge.
Mr Mrdak : Perhaps, I can clarify. Mr Deegan is taking leave. He remains the infrastructure coordinator, but he has not resigned from the position.
Senator STERLE: I thought I heard you say that.
Senator RHIANNON: Thank you. I will just change the question on notice to 'since he took leave', which I understand was in February this year. Coming back to this issue about the traffic projections, there is a company called AECOM. So, as AECOM is undertaking traffic projection figures for WestConnex, it is facing legal action over flawed traffic projections for Brisbane's Clem7 motorway. Does Infrastructure Australia have any concerns about the traffic projections that have been put forward for WestConnex?
Mr Brennan : We would only be able to determine whether we do have concerns if we saw the information that they had produced.
Senator RHIANNON: And that is what you going to take on notice to determine—if you have been provided with it. Could you take this on notice: has there been any independent analysis undertaken by Infrastructure Australia of any traffic projections provided by AECOM?
Mr Brennan : I will take that on notice.
Senator RHIANNON: Thank you. Can you confirm that neither WestConnex nor the East West Link are currently on Infrastructure Australia's priority list?
Mr Brennan : The East West Link is on the infrastructure priority list in the 'real potential' category. WestConnex is on the infrastructure priority list in the 'early stage' category.
Senator RHIANNON: Could I just check if that is publicly available—because the one I looked at in preparation for today, which was the most recent publicly available one I could fine, was December 2013. They were not down there on the priority list. To clarify the question: you said East West is on the 'real potential' category and WestConnex is on the 'early stage' category, so that is not a priority list?
Mr Brennan : It is. I have got the December 2013 priority list in front of me that I pulled off the website on Friday, and both projects are on that.
Senator RHIANNON: Okay, I must be mistaken. You are actually saying they are both on the priority list?
Mr Brennan : Yes.
Senator RHIANNON: Thank you. Is it down as WestConnex? I sometimes find it is put down as 'M4 Managed Motor Ways'?
Mr Brennan : No, it is down as WestConnex NSW, $10-13 billion.
CHAIR: Was that billion?
Mr Brennan : Yes.
CHAIR: Were you going to pay in gum leaves?
Mr Brennan : I beg your pardon, Senator?
CHAIR: How are you going to get the money? Last year there was $3 trillion of tax avoidance in transfer pricing. Are you going to use gum leaves to pay for that?
Mr Brennan : That project is rated at 'early stage'. It is not at the stage where we would recommend it to government.
Senator RHIANNON: If the position of Infrastructure Australia's coordinator was abolished, if there was a restructuring, could you explain how decisions would be made? Who would be responsible for assessing project submissions?
Mr Mrdak : That probably falls more to me in terms of the policy issues. The government's commitment is that it will transfer the governance arrangements to establish the organisation to be headed by a board, which will be appointed, and the position of infrastructure coordinator will no longer exist in its current form. There will be a CEO appointed by the board, who will be responsible for the organisation's running and who will report directly to the board. Matters of project advice would be the responsibility of the board.
CHAIR: You are now starting to encroach on the inquiry into the infrastructure bill that is to be held on Friday. I just caution you.
Senator RHIANNON: Chair, I was just about to ask or an elaboration about the position of the coordinator and the CEO and what the difference would be. I did not see that was a problem.
CHAIR: It is a fine line.
Senator CONROY: It has no bearing on Senate estimates.
Senator RHIANNON: Thank you very much. Could you just elaborate on the functional difference between the current position—the coordinator—and a CEO appointed by the board?
Mr Mrdak : Yes. Under the current Infrastructure Australia governance arrangements, the infrastructure coordinator is appointed by the minister and reports directly to the minister. Additionally, there is the Infrastructure Australia Council, which is an advisory council, which also operates to provide advice to the minister, but there is not a direct governance relationship between the council and the infrastructure coordinator. Under the new arrangements being proposed by the government in the legislation, the council will become a board with statutory management and leadership responsibilities for the organisation, and they will employ the chief executive officer, and advice to government will come through the board, not directly from the infrastructure coordinator to the minister.
CHAIR: Senator Rhiannon, can I just advise you that the next question will be your last for the time being. Make it a bottler.
Senator RHIANNON: Thank you. Mr Brennan, when Infrastructure Australia is considering proposals for public transport infrastructure and bicycle lanes, does it take into account any wider economic benefits when modelling benefit-cost ratios, or simply the stock standard measurement of cost-benefit analysis?
Mr Brennan : We usually get projects that are presented to us with core benefits as well as wider economic benefits. The practice of determining wider economic benefits is still fairly young, but we recognise that it is real and important, and so we do undertake analysis of benefits that are claimed in that area.
Senator RHIANNON: Could you put that into context with regard to bicycle lanes?
Mr Brennan : I would imagine that bicycle lanes will have direct benefits to the users, particularly in terms of safety and travel time. They may also have wider benefits in terms of health for—
CHAIR: Thank you very much for that. I will tell you one thing bicycle lanes are good for; they are a source of revenue for the police because when the motorbikes go up them, especially in William Street—
Senator RHIANNON: You would probably be interested in the William Street one. It was required that they put bicycle lanes in, under the Labor government, for the motorway contract, but then they were not required to keep them so they took them away. It is another failure of the Cross City Tunnel.
CHAIR: The trouble with them was that the motorbikes were using them—
CHAIR: The trouble with them was that the motorbikes were using them.
Senator RHIANNON: New South Wales Labor.