Categories
Lytton Advisory

Happy New Year!

Wishing clients, colleagues and friends a happy and prosperous 2022. Thank you to everyone who has worked with Lytton Advisory over the past year and has supported our efforts. We look forward to engaging with you all in the New Year.

Craig Lawrence, Managing Director

Categories
Lytton Advisory

Build Less Infrastructure, Make What We Have Better

Recently I was reading a LinkedIn post about infrastructure that was drenched in buzzwords.  It struck me that the big professional service fees are in new infrastructure and construction (building more). 

That is what many large advisory firms are seeing and want.  Fee incentives are all around the size of the overall spend.
However, I think a lot of the ‘thought leadership’ pieces from some of these firms skip over the maintenance and rehabilitation story (keeping what we’ve got going).

Those maintenance / rehab projects are more numerous and smaller in scale.  Also, they reach deep into local government systems, bypassing large state and federal bureaucracies.  

But there are no real fees for the large advisory firms in that.  

Neither federal nor state governments have been successful in keeping the lid on the costs of large projects – they seem to blow out.
And there do not appear to be any real consequences for poor advice.

It is an old line that infrastructure spending kick starts the economy.  Also the tired ’shovel ready’ cliche gets trotted out again and again.  More of the same thinking, really. Get ready for that to be turbocharged in the upcoming federal election.

We really need to get more service from the infrastructure asset dollar, rather than just building big, dumb assets.

It is instructive that recently a major firm fired a partner for telling its government client they were wasting taxpayer money.  That would never have seen the light of day without a transparent, independent inquiry process.

Some large firms are shamelessly conflicted with embedded contractors masquerading at senior levels as independent professionals when they are, in effect, overpaid departmental staff.

Are they being paid to steer projects or steer work to their firms?

Professionalism must be accompanied by independence and transparency, but the penchant for opinion shopping remains strong.

Quis custodiet ipsos custodes? (Juvenal)

Categories
Lytton Advisory

Two Paths

I have an enormous amount of respect for planners – infrastructure planners, economic planners, financial planners, city and town planners – anyone that has to marshal huge reams of data, distil the essence of need and come up with a future path for all of us.  Planning is one of the most difficult and contested activities around infrastructure.

Common to all planners is the need to look ahead and determine what investments are made when.  More importantly, planners are front and centre in determining why these investments occur in the first place.  Often, planners are actively shaping a ‘why’ that communities eventually embrace (or not).

It is often said that plans become obsolete upon first contact with reality.  In the sense that a plan is an abstraction of reality, this may well be true.

Recently I completed a short course in behavioural economics that really helps economists understand we live in a world of people, rather than stylised profit maximising agents.  And I am seeing how this affects the kinds of investments we make.  Toll roads that are hardly used, dams that we barely drink from, office towers that lie vacant.  It is sometimes difficult to reconcile perceptions of future use with the use that occurs.  It often feels no one is accountable for the herd of white elephants that choke off better investments.

I was reminded on a recent walk to remain humble and remember the whole point of public infrastructure is to serve the needs of the people.  Irrespective of drawing a seductive curve of path on a map, sometimes people simply want the utility of getting from point A to point B.  The challenge is knowing when function must dominate form.  My aesthete is always looking for that balance.

Categories
Lytton Advisory

Appointment

Lytton Advisory is pleased to advise that Craig Lawrence has been appointed as a consulting economist to the Asian Development Bank. He will be assisting the Bank by conducting due diligence on public sector investments proposed for ADB financing; and undertaking assessments and economic analyses on proposed ADB projects and programs.

Craig is Managing Director of Lytton Advisory. For the past eight years he has led teams of economists examining infrastructure and public policy issues.

Categories
Lytton Advisory

Season’s Greetings

“Start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible.” St Francis of Assisi

This year has been extraordinarily challenging for all of us. Australia was ablaze with bush fires before the world succumbed to a global pandemic.

Lytton Advisory has been extremely fortunate to work with a committed group of clients and be well supported by a talented array of professionals. Thank you to one and all.

With blessings and best wishes to you and yours at Christmas and for the coming year.

Craig

Categories
Lytton Advisory

Behavioural Economics in Action

Economic analysis starts from an assumption that people act in a rational way. Over the past few years economists have been exploring why people seemingly break this assumption on a regular basis. Understanding how people react to information, incentives and the way in which choices are presented is becoming increasingly key to developing effective approaches to designing and delivering public policy. It was one of the reasons I recently completed a short course on behavioural economics.

Categories
Lytton Advisory

Stress Testing Infastructure Pricing During Coronavirus

undefined

Coronavirus is forcing utilities to rapidly reappraise their pricing, to assist communities. I have been looking how to stress test utilities in response to Coronavirus. This follows observing the deferral of a recent regulatory pricing review and extension of the regulatory pricing period by a year for a water utility here in Australia. That action in and of itself will not address the impacts of Coronavirus.

I had some thoughts about a possible review approach. Specifically:

i) the financial capacity of the water and waste units to respond to requests by the governments to support their communities; and

ii) the ability of water and waste activities to defer some capital expenditures beyond the governments’ current budget horizons.

My initial thoughts are that this might be in the form of a series of financial stress tests that consider:

i) the implications of extending the current path for rates based on governments’ current asset management approaches;

ii) reducing charges by dropping any surplus generated to assist households over a period nominated by governments;

iii) deeper reductions in charges based on deferring capital and operating expenditures through the current period of budgets and perhaps beyond;

iv) implications for the path for charges beyond the current budget outlook, including taking into account the impact of deferring of capital expenditures designed to drive greater efficiency of service delivery; and

v) commercial implications of significantly lower volumes of services to businesses on utilities’ operations and margins, which might be significant in terms of trade waste issues.

A high-level review of engineering costs, capex and opex, could feed this financial analysis based on available information. Although not a full cost pricing determination, the review would help a government and utility business managers quickly figure out what level of relief can be given by the water and waste activities to households and businesses while minimising future rises in charges.

From an economic perspective, it may be simpler for governments to subsidise water and waste activities through temporary community service obligations (CSOs) directly. If that were a viable policy option, this could be a key piece of analysis to help set the level of the CSO, lay out KPIs for that CSO and establish the criteria for unwinding the CSO when measurable impacts from Coronavirus have passed.

Categories
Lytton Advisory

Response to COVID-19

Our response to COVID-19 shows the actions we are taking to keep clients and associates safe and continue to provide services during this time.

Categories
Lytton Advisory

Value for Money

Lytton Advisory was in the Middle East last year for an assignment. It got us thinking about comparisons of urban transport systems and what constitutes value for money.

Here is one to consider. A few simplifications have been made to bring capital cost, new route length and population into perspective. These projects are at the core of these cities’ transport systems.

Brisbane’s Cross River Rail is building 10.4 km of new rail line and four new stations. A further eight existing stations will be upgraded. The cost is stated to be A$5.4 billion or around US$3.5 billion.

Cross River Rail – US$336 million per kilometre. The population of Brisbane is 2.5 million. Cross River Rail costs about $134 per person per kilometre.
Riyadh is installing a complete metro system for US$22 billion. This will build six metro lines totalling 176km with 85 stations.

Riyadh metro – US$125 million per kilometre. The population of Riyadh is 6.9 million. Riyadh metro costs US$18 per person per kilometre.

Station densities on the new routes are one every 2.6 km for Cross River Rail and one every 2.1 km for the Riyadh metro.

It appears that Cross River Rail is more expensive on a per new kilometre per resident basis by a factor of 7.4 times. There are plenty of reasons why Cross River Rail might be more costly, but surely more is going on than just tunnelling and labour costs.

So is Cross River Rail better value for money than Riyadh metro?

Categories
Lytton Advisory

City Infrastructure

Thanks, Gene (Adept Economics) for hosting me on an episode of your podcast series Economics Explained. It was great we were able to unpack a few things about city infrastructure for your listeners, particularly regarding Brisbane’s Green Bridges program and Cross River Rail.