This document discusses challenges facing infrastructure investment and management in Australian cities. It notes that public investment in infrastructure is declining while private investment is increasing. This puts pressure on infrastructure as the costs of projects rise due to factors like urban density, environmental regulations, and competition for resources. The document calls for an integrated approach between different levels of government for infrastructure planning and benchmarking to improve prioritization, incentives, governance, and performance of infrastructure over the long term.

1. SMART CITIES
Working Group Discussion
Garry Bowditch, CEO SMART
ADC Forum, 14 March 2014, Sydney

2. What is SMART about?
2

4. APPLIED INFRASTRUCTURE RESEARCH
BREAK DOWN THE SILOS

5. 4.5m
22.3m
70m
Circa 1904 2014 2100
Australia’s Population Narrative

6. When is a city ‘smart’?
6
Source: Boyd Cohen, What exactly is a smart city?

7. Evidence of a smart city
Land Use
Planning
Population
Demographics
Infrastructure
Requirements
…simply joined up planning
Benchmarks
Monitoring &
Actioning
Long Term
Trends
Long Term
Assumptions

8. Planning Assumptions
• Does history repeat?
Transport
Energy

9. Disruptive Technologies
Driverless Cars no
longer science
fiction. Mass
availability by
2025.
Smart cities are
front footed to
change.
Connecting
research, venture
capital and
legislation is just
what cities do to
be creative and
competitive?

10. What is happening to infrastructure
investment?
10

11. Public Investment share is falling as the private
sector assumes a greater role
0%
5%
10%
15%
20%
25%
30%
35%
40%
Sep-1959
Sep-1961
Sep-1963
Sep-1965
Sep-1967
Sep-1969
Sep-1971
Sep-1973
Sep-1975
Sep-1977
Sep-1979
Sep-1981
Sep-1983
Sep-1985
Sep-1987
Sep-1989
Sep-1991
Sep-1993
Sep-1995
Sep-1997
Sep-1999
Sep-2001
Sep-2003
Sep-2005
Sep-2007
Sep-2009
Sep-2011
Public Investment as a share of Total Investment, 1959-2013%
Peak 35.5% in June 1975
Low 16.5% in March 1998 16.6% in Sept & Dec 2007
Greiner/Fahey (1988-1996);
Goss (1989-1996)
Kennett (1992-1999)
- corporatisation and privatisation
models
- significant fiscal consolidation in
Victoria and NSW
- strong fiscal rules in Queensland
Heavy Government Borrowing
"Nation Building" , particularly Qld and C/W
Peak 23% in March 2010
11

12. Private investment is now four times larger than
public investment
-
10
20
30
40
50
60
70
80
90
100
-
10
20
30
40
50
60
70
80
90
100
$ billion (2013) $ billion (2013)Total Annual Public and Private Investment, (Constant $2013)
Total Annual Public Investment ($2013)
Total Annual Private Investment ($2013)
12

13. Public investment trends have reflected policy and
governance reforms and asset renewal cycles
$500
$550
$600
$650
$700
$750
$800
$850
$900
$950
$1,000
$1,050
$1,100
$500
$550
$600
$650
$700
$750
$800
$850
$900
$950
$1,000
$1,050
$1,100
$ Real Annual Total Public Investment per capita, 1983-2013 ($2013)
Public Ownership
Corporatisation
Privatisation
"Nation Building"
$
rebuild electricity &
water assets GFC
13

14. Transport & Communications investment is
growing strongly
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
Transport
Electricity,Gas & Water
$ $Capital Stock per Capita, selected capital-intensive service industries (Real $2013)
The growth in both the Transport and Utilities capital stock ,in per capita terms, is well
above trend. This suggests either a cyclical 'catch-up' or some poor incentives leading
to overbuilding.
14

15. But it is clear that major pressures remain
15

16. Why is it becoming more difficult to
manage pressures on our infrastructure?
16

17. Asset renewal cycle
-
2,000
4,000
6,000
8,000
10,000
12,000
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
Electricity Networks Investment Megacycle ($2011)$ million
1955-1979 average investment = $5
billion per year
1980s - $9 billion per year
1990s "Investment Blackout" $2 billion per year
2005-2013 - $11 billion per year
Large Investments in Electricity and
Urban Water Networks
Average level of annual investment by decade ($2011)
17

18. Increasing ‘peakiness’ of electricity
demand
• Peak demand is a key driver of investment in generation and network capacity
– costs of which are ultimately borne by all electricity users.
– Network capacity that caters for less than 40 hours a year of electricity
consumption (or less than 1 per cent of time) accounts for around 25 per
cent of retail electricity bills.
18

19. Changing urban environment make
construction more costly
• Higher population density and much higher land values
– Increases disruption associated with major works
– And cost of land resumption
• More brownfields assets needing expanding or ‘decongesting’
• Fewer vacant corridors
– Imposes very costly solutions such as tunnelling
• Greater environmental restrictions and more responsiveness to community concerns
19

20. The strong rise in private investment
increases competition for infrastructure
inputs
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$ Real Annual Total Private Investment per capita, 1983-2013 ($2013) $
Private Investment per capita
ICT Boom
Mining Boom I & II
GFC
20

21. The overall result is rapidly rising
infrastructure costs (eg. roads)
21
80
90
100
110
120
130
140
150
160
170
180
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
RCMPI
ABS RBCI
PPI
The costs of Road Construction and Maintenance are running
significantly ahead of the Producer Price Index.
Index 1989-90 = 100
15-25% higher

22. Projects are becoming larger, costlier, more
complex, and therefore riskier
0
2
4
6
8
10
12
Gateway Bridge 1
(1986)
M5 original (1991) Epping to Chatswood
Rail Line (2008)
Gateway Bridge 2
(2010)
Clem 7 Tunnel (2010) Regional Rail Link
Victoria (ongoing)
Airport Link (2013) Westconnex
(proposed)
The cost of major road and rail projects is rising$ billion (2013)
The costs per km of road or rail track have risen by up to tenfold since the major
infrastructure projects of the 1980s and 1990s
The causes of rising infrastructure costs relate to:
- increased complexity
- supply/demand factors (cyclical factors)
- project governance
- more stringent environmental and safety requirements
- (pre-GFC) availability of debt

23. What should a ‘smart’
infrastructure Prime Minister do?
23

24. An Integrated Approach to
Infrastructure
• ‘Integrated planning’ is not fancy ‘management-speak’
• Commonwealth & States to (self) set objectives (outcomes) and
monitor for compliance and whole of government response
• There is a real problem in public provision of infrastructure
– Lack of integration between demographic, land-use and
planning spheres, especially at State level
– In the last decade, very weak ‘value-for-money’ frameworks
• Lax budget constraints through 2000s
• High cost of ‘mega-projects’, competition with resources boom
• Poor regulatory/pricing options leading to poor transparency
• Service (quality) benchmarking non-existent at a network level
• Lack of proper CBA, for example establishing the objective or issue
that the infrastructure is designed to address
• IA has not delivered as expected in terms of correct prioritisation,
favouring mega-projects over least-cost incrementalism.
24

25. There is a need to set high level long term
Performance Benchmarks
Sydney’s road networks underperforms
compared to OECD eg. peak hour speed
Sydney 40 Km/h
Melbourne 44 Km/h
London 54km/h for 60 Km trip

26. Long Term Performance
Benchmarks
SMART is calling for a reduction in
road and rail travel in peak times
along principle routes by 30 per cent
by the end of the 2042.

27. Better priority
setting
Better
incentives
Better
governance
• Less focus on
major ribbon
cutting
• More use of
well-targeted
‘pinch point’
interventions
• Improved life
cycle
management
• Ensure assets have
‘owners’ whose
returns depend on
life-cycle
performance
• Improve contracts
to better align risk,
effort and reward
• Use prices or
shadow prices to
signal costs
• Review regulative
setting for more
innovation
• Clarify roles of
Commonwealth
/State bodies
• Better align
analysis
methodologies
• Greater
transparency at
all stages
• Improve
public/private
balance
27

28. Garry Bowditch
CEO
SMART Infrastructure Facility
+61 414 977 683
garrybow@uow.edu.au