Allens

Infrastructure & Transport

Client Update: NSW infrastructure plan for the future

4 October 2012

In brief: Infrastructure NSW has released its State Infrastructure Strategy for the years to 2032. In an attempt to stem declining productivity in NSW, the report recommends a variety of infrastructure projects that will cost $30 billion, of which $10 billion would be funded by user payments. Partner Nigel Papi (view CV), Senior Associate Lixian Liang and Lawyer Tanvir Ahmed report.

Key projects

Infrastructure NSW is an independent body established to advise the NSW Government. In its report released yesterday, it recommends over 70 projects over the next 20 years, and gives a rough cost estimate and a recommended timeframe for each project. The key project recommendations are:

  • WestConnex – an extension of the M4 and M5 East motorways that links the M4 to Kingsford Smith airport, accompanied by a refurbishment of Parramatta Road and surrounds;
  • F3-M2 link and F6 extension, bringing connections north and south of Sydney up to motorway standard;
  • light rail from Central to Moore Park and UNSW;
  • an underground bus transitway from the Harbour Bridge to Town Hall (as opposed to light rail), along with upgrades and interchange facilities for Town Hall and Wynyard stations and conversion of part of George Street into an exclusive pedestrian zone;
  • preservation of Badgerys Creek and the Richmond RAAF base as potential sites for Sydney's second airport, while relying on Kingsford Smith to service current air traffic demand; and
  • continued reliance on the currently existing Sydney Harbour crossings rather than procurement of a second major crossing.

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Assumptions behind the projects

The following key strategic points underpin the recommendations:

  • as road traffic accounts for the vast majority of freight and commuter journeys in NSW, it is unrealistic to expect that this will change dramatically, and thus infrastructure investment in roads should be a key focus; and
  • better utilisation of existing infrastructure should be emphasised over procurement of new infrastructure.

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Financing – private versus public

The report makes observations about the financing method and potential for private sector involvement in upcoming infrastructure projects. In particular, it notes that lenders have become very risk averse in the current global economic atmosphere, and that the NSW Government can borrow money at much lower interest rates than private sector entities. The benefits associated with the public private partnership (PPP) model may fail to outweigh the increased cost of private sector financing.

At the same time the NSW Government has little headroom to service more debt without affecting its credit rating, which creates countervailing pressure to have the private sector finance future projects.

The report identifies direct capital contributions and debt paydowns as mechanisms that the Government can use to enjoy the benefits of the PPP model with reduced reliance on private sector borrowing rates. These mechanisms, of course, must still be funded by the Government.

The report also recommends the 'recycling' of the NSW Government's capital by privatising existing assets and using any resulting windfalls to help finance further projects. The report identifies federal funding as a possibility, but makes it clear that it is entirely dependent on the Federal Government's spending priorities and willingness to borrow.

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Government response?

Infrastructure NSW has made two major recommendations that contradict the draft NSW Long Term Transport Plan that the NSW Government released on 4 September 2012. These differences are:

  • an underground bus transitway beneath George Street, as opposed to the Government's light rail proposal. It cites the success of a similar project in Brisbane and argues that light rail would be significantly more expensive than an underground bus transitway, with little extra benefit; and
  • reliance upon existing harbour crossings, rather than a second major harbour crossing.

NSW's transport minister, Gladys Berejiklian, stated that the Government will respond to Infrastructure NSW's State Infrastructure Strategy by the end of 2012. We can expect an indication of the Government's position on these two points by then.

The NSW Premier, Barry O'Farrell, has already endorsed the WestConnex recommendation. The rapid endorsement of the WestConnex project by the premier suggests that the NSW Government is willing to initiate major projects and that business opportunities will arise as a result.

For further information, please contact:

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