Mega transport underpins pipeline

Catherine Birch

Senior Economist, ANZ

New South Wales is rolling out record levels of investment in road and rail. The state’s 2019-20 Budget outlined $A55.6 billion of funding across more than 3,500 public transport and road projects. This was expanded to $57.5 billion in the Half-Yearly Review released in mid-December.

The key question of course remains “is this enough?”.

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In its 2019 audit, Infrastructure Australia argued record levels of infrastructure investment need to become the “new normal” to avoid increased congestion and reduced living standards and productivity.

"Debt is cheap and will likely stay cheap for a long time but asset recycling offers a means to fund projects while limiting increases to government debt.”

ANZ Research’s Australian Major Projects report looks at public, private, and public-private partnership (PPP) projects worth $A100 million or more across sectors including road, rail, mining, electricity, hospitals, offices, retail, and hotels. Transport infrastructure projects are a key driver of New South Wales’ overall major project pipeline.

But there is a dip in the investment profile of these projects in 2019-20 and 2020-21 – largely reflecting timing lags between the completion of projects and the substantive phase of new ones – before road and rail activity ramps up again.

While record infrastructure investment in New South Wales becomes the “new normal”, this raises questions over how projects will be funded, particularly given the recent plunge in stamp duty revenue. Debt is cheap and will likely stay cheap for a long time but asset recycling offers a means to fund projects while limiting increases to government debt.

New South Wales Premier Gladys Berejiklian has flagged the possibility of selling the remaining half of WestConnex to help fund projects including Sydney Metro West and the Western Harbour Tunnel and Beaches Link.

Renewables powering public transport

As major public-sector-backed transport infrastructure activity falls in New South Wales in 2019-20 and 2020-21, public investment in hospitals and renewables is expected to fill some of the gap.

$A11 billion worth of major hospital projects are underway or likely to commence soon and Snowy Hydro 2.0 (currently estimated at more than $A5 billion) is scheduled to start major construction works in 2020.

The New South Wales Government has also begun sourcing renewable power for the state’s public transport network, contributing to its goal of net zero emissions by 2050. Operational electricity requirements of Sydney Metro Northwest are fully offset under a 15-year Green Products Purchase Agreement to procure large-scale generation certificates from the Beryl Solar Farm, located in the Central Tablelands of New South Wales.

The New South Wales Government has also announced a plan to switch to electric-powered buses which could be charged using renewable energy.

In the pipeline

Major road project activity is set to decline in 2019-20 and 2020-21 as the $A3 billion NorthConnex and $A4.9 billion Woolgoolga – Ballina section of the Pacific Highway upgrade wind down. The $A16.8 billion WestConnex will continue to underpin roads activity until its scheduled completion in 2022-23 but the next upswing in road investment will be driven by the Western Harbour Tunnel and Beaches Link. This project has recently been pushed back to start in 2022 at the earliest and the $A14 billion cost estimate may be revised upwards.

However, while only $A165m was committed for planning in the Budget, the Half-Yearly Review committed funding towards construction on two components of the project over the forward estimates to 2022-23; $2.2 billion for the Western Harbour Tunnel and $1.4 billion for the Warringah Freeway Upgrade. Coffs Harbour Bypass and F6 extension are also scheduled to get underway in the early 2020s.

Major rail project activity is set to drop in 2019-20 following the early – and under budget – completion of Sydney Metro Northwest in mid-2019 while the delayed CBD and South East Light Rail is also in the final stages. The $A12 billion Sydney Metro City and Southwest will put a solid floor under rail activity until its estimated completion in the mid-2020s but it will be Sydney Metro West – the largest new public project within the forecast horizon – that will drive activity higher.

Sydney Metro West is currently costed at $A20 billion but some estimates are as high as $A25 billion and it is now not expected to be operational until 2030. The North South Metro Rail Link, which will service Western Sydney Airport, will also support rail activity through the mid-2020s, with the New South Wales and Commonwealth Governments committing a combined $A5.5 billion.

In November, Prime Minister Scott Morrison announced $A3.8 billion in national infrastructure funding would be brought forward or added to the pipeline. However, the $A570 million infrastructure package allocated to New South Wales will not make much impact on the state’s overall project pipeline. $A530 million of the package represents accelerated funding across three major regional projects: $A185 million for the Toowoomba to Seymour corridor; $A200 million for the Newell Highway; and $A145 million for the Princes Highway corridor.

Capacity constraints

With several states rolling out record transport infrastructure programs at the same time, reports of capacity constraints are on the rise, particularly in Sydney and Melbourne. Without effective policy action, capacity constraints pose a material risk to the delivery of necessary infrastructure in New South Wales.

In a 2019 survey, international commercial law firm Allens found 43 per cent of infrastructure leaders in Australia believed the industry’s biggest concern was the inability to deliver the current project pipeline. They also considered tunnels and rail to be the highest risk projects. The survey identified the large volume of projects in Sydney and Melbourne as a contributing factor.

Moreover, with the Cross River Rail in Brisbane and Stage 2 of Canberra Light Rail both expected to commence shortly, constraints could continue to spread.

Catherine Birch is Senior Economist at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.