We are drowning in a sea of information. But knowledge can be hard won and wisdom sometimes seems almost impossible to implement. Many would experience this in the infrastructure sector. So for those that follow me on LinkedIn, I thought a series of infrastructure haikus might be a novel way to look at some of the issues.
Early vision cast, Needs and dreams on paper sketched, Blueprints in the mist.
Funding battles fought, Public voice and budgets weigh, Choice in numbers set.
Designs come to life, Engineers and planners meet, Maps turn into roads.
Shovels break the ground, Concrete, steel take form and rise, Promise now concrete.
End of useful life, Time to reassess the need, Planning is reborn.
Each haiku focuses on a specific phase of infrastructure planning, from initial conception to design, construction, operation, maintenance, and eventually reconsideration for future needs. Collectively, they aim to encapsulate the cyclical, ongoing nature of infrastructure planning and its multifaceted aspects.
Lytton Advisory recently visited Albury-Wodonga, and we have been thinking about some of the challenges of multi-level, multi-jurisdictional infrastructure planning.
Infrastructure Planning in Albury-Wodonga: Navigating Complexities and Embracing Opportunities
Albury-Wodonga, the iconic twin city on the Murray River border of New South Wales (NSW) and Victoria, exemplifies the complexities of infrastructure planning in border regions. As with other border areas, these cities grapple with intricate intergovernmental relations, but their unique geographical and administrative contexts add layers to the decision-making process. Both municipalities recognise this in their joint ‘Two Cities, One Community Approach’.
Key Challenges in Infrastructure Planning
Harmonization of Standards and Regulations: Collaboration is a hallmark of infrastructure projects in this region. Yet, each state brings its unique set of standards, regulations, and bureaucratic processes. Reconciling these differences becomes pivotal. Without a synergistic approach, the twin cities could witness infrastructural discrepancies, leading to inefficiencies and possibly, public discontent.
Interstate Transportation: Albury-Wodonga is not just two cities in proximity; it’s a transportation nexus. Roads, railways, and air links intertwine the destinies of these cities. The imperative is clear: both states must harmonize their efforts. Inconsistencies in funding allocation or project emphasis can stymie fluid connectivity, impeding the economic and social rhythm of the region.
Resource Sharing and Management: Nature doesn’t recognize man-made boundaries. The Murray River, a lifeline for both cities, exemplifies shared natural resources. Consequently, infrastructure like water treatment plants or riverfront recreational areas require scrupulous planning. Both equitable access and the long-term ecological sustainability of these shared resources are at stake.
Economic Development Consistency: Albury-Wodonga, in many ways, dreams of functioning as a cohesive economic hub. Yet, state-driven economic policies, if not aligned, can tilt the balance. For instance, preferential investment in one city’s industrial infrastructure could unintentionally dwarf the other’s economic aspirations.
Community Engagement and Perception: Beyond bricks, mortar, and policy, lies the realm of human sentiment. Residents might oscillate between their state affiliations and a broader twin city identity. Their expectations, molded by these affiliations, play a pivotal role. Striking a balance in infrastructural development that resonates with these sentiments becomes paramount.
The Population-based Infrastructure Planning Dilemma
A proposition of tailoring infrastructure based on relative populations adds a layer of intrigue to the planning discourse.
Pros:
At its core, population-based infrastructure seems egalitarian. Larger populations, logically, have augmented infrastructure needs. Meeting these proportionally ensures fairness.
Such an approach can be agile, adapting to demographic dynamism and ever-evolving urban needs.
Resource allocation rooted in population metrics could streamline funds, optimizing utility and curtailing wastage.
Cons:
A myopic focus on numbers could eclipse nuanced needs. A smaller populace might harbor intense infrastructural demands due to myriad external factors.
Over-emphasis on population-driven infrastructure could perpetuate developmental imbalances. One city, experiencing organic growth, might inadvertently overshadow its twin.
Fragmentation is a lurking danger. The very essence of Albury-Wodonga lies in its intertwined identity. A skewed focus might fracture this cohesion.
Looking to the Future
As we gaze forward, it becomes abundantly clear that Albury-Wodonga’s tale is not merely about connecting two cities with roads and bridges. It’s an intricate dance of administrative alignment, resource optimization, and human aspirations. While the significance of population in infrastructural decision-making remains undeniable, it should meld with other considerations. The ambition should be holistic development, ensuring that both cities, while retaining their unique identities, march forward hand in hand, into a future replete with promise.
Harnessing collaborative synergies, championing sustainability, and placing residents at the heart of planning can ensure that Albury-Wodonga evolves from being two cities on a map to a pulsating, integrated urban entity.
Doing infrastructure planning in a tri-level, multi jurisdictional context has its challenges. Keen to hear about your experiences.
Local governments are typically involved in collection and disposal of municipal and household waste. To what extent are local communities required to participate in the full product lifecycle and how can this occur?
There are several ways that local governments can help create markets for recycled waste.
Developing policies and regulations that require businesses and residents to recycle certain materials, such as plastic or cardboard. This creates a demand for recycled materials and encourages businesses to invest in recycling infrastructure.
Providing financial incentives for businesses that recycle, such as tax credits or grants, to encourage them to invest in recycling technology and infrastructure.
Working with local organizations and businesses to identify and create new markets for recycled materials. This could include partnering with manufacturers who use recycled materials in their products, or working with retail businesses to sell recycled products.
Promoting the use of recycled materials through marketing and outreach efforts, to educate the public about the benefits of recycling and encourage them to support businesses that use recycled materials.
Providing infrastructure and resources to support recycling, such as collection and processing facilities, to make it easier for businesses and residents to recycle their waste.
Collaborating with regional and national organizations to facilitate the exchange of recycled materials and create larger markets for recycled products.
To what extent is your local government participating in these approaches?
I have been doing cost benefit analyses for a few years now. The concept is deceptively simple but provides a solid framework for insightful decision making.
It is a tool used to assess potential costs and benefits of a decision or project, usually in monetary terms. It is commonly used to evaluate the feasibility and potential impact of projects, policies and regulations.
Recently I have been thinking about the usefulness of the approach given that many major project often seem to float past this analysis.
Here are five epiphanies that might help CBA evangelists:
The true value of a decision lies not just in its financial cost and benefit, but also in its impact on people and the environment.
CBA forces us to weigh the pros and cons, but it’s important to remember that some benefits and costs are difficult to quantify and may have long-term effects that are not immediately apparent.
It should not be the sole factor in decision-making, as there may be intangible or ethical considerations that cannot be easily measured in financial terms.
CBA is a useful tool, but it is important to remember that it does not account for future uncertain events. Therefore, it should be used in conjunction with other decision making tools for a comprehensive evaluation.
Cost-benefit analysis can be misleading if it only looks at short-term financial gains and ignores long-term social and environmental costs. A more holistic approach should be used that accounts for all the potential impacts of a decision.
These are just some of the insights about CBA, but there are more that might be organisational or project relevant.
Is CBA a key driver of your organisation’s project appraisal process or just another compliance element in developing business cases?
Recently I have been thinking about how early-stage screening of infrastructure proposals can be made more effective. Time and again I see lists of projects here in Australia that are unfunded, undeveloped and, frankly, never-deliverable.
A key element of good infrastructure planning is the capture of the complete suite of proposals that could be under consideration at a point in time. This is critical for national infrastructure planning. Part of this also needs to consider the best way to screen all of these proposals, so determine which ones might be come investment ready projects. There are several best practices that can be followed when screening infrastructure proposals.
Identify the goals and objectives of the project: It is important to have a clear understanding of the purpose and potential impacts of the project. This will help to ensure that the proposal aligns with the goals and objectives of the organization or community.
Evaluate the feasibility of the proposal: Consider the technical feasibility of the proposal, including whether the proposed solution is technically sound and can be implemented within the available resources.
Assess the financial viability of the proposal: Determine the costs associated with the proposal and consider the potential return on investment.
Consider the environmental and social impacts: Infrastructure projects can have significant environmental and social impacts. It is important to consider these impacts and ensure that the proposal takes them into account.
Involve stakeholders in the process: Engage with stakeholders, including community members, local businesses, and other interested parties, to gather input and ensure that the proposal is responsive to the needs and concerns of the community.
Utilize a formal proposal review process: Establish a formal process for reviewing and evaluating proposals, including the use of a proposal review committee or panel to evaluate and provide recommendations on proposals.
I wonder how many proposals processes check off against these issues. What has been your experience?
Following the NSW Government’s released of an independent review of its resource recovery framework and implications for the circular economy, three key takeaways struck me:
The review identified friction between the environment and safety objectives of the existing NSW waste and resource recovery framework and the need for flexibility to support innovation and a smooth transition to a circular economy.
A key criticism of the EPA was their handling of the revocation of the mixed waste organic material (MWOO) exemption in 2018. This led to recommendations for the resource recovery regime to be put on a similar footing to environmental and planning approval regimes.
The debate over the definition of waste continues, as the broad interpretation in the case of EPA v Grafil has potentially slowed the advancement of the circular economy.
The Review made a recommendation that the EPA should investigate a pathway to enable an “end-of-waste” outcome for suitable common, low-risk recovered materials to better enable reuse and promote circularity.
There were many other matters raised in the review, highlighting the challenges of both resource recovery and closing the loop between waste and input to future production processes.
The balance between environmental protection, regulation to achieve that and innovation to drive the emergence of the circular economy is still being worked out.
How do you think this is being played out in other jurisdictions? What tradeoffs have to be made between effective environmental regulation and commercial innovation to achieve the circular economy?
Recently, the Federal Government decided that it does not want to interfere in the market for the private provision of rapid antigen tests in the middle of a pandemic.
Preserving the right of private businesses to profit during the pandemic at the potential expense of the vulnerable is simply not a great policy.
What are the economics behind this, and what might they be missing?
Rather than assume it is simply a cop-out, it seems it is a naive application of Economics 101. However, the policy is not well thought through.
The implicit assumption is that there are no significant positive externalities in subsidising the cost of rapid antigen tests. That is the information benefits of knowing whether you have Covid and taking personal responsibility by appropriately isolating to avoid infecting other people are neither insignificant nor irrelevant.
The US National Bureau of Economic Research recently concluded that much of the decline in economic activity in the US associated with Covid-19 came from self-protective behaviour. As Australia re-opens its economy, this is likely to become a potential handbrake when uncertainty about managing the virus is widespread in the community. RATs provide a frontline but partial solution to this self-protective behaviour.
Research by the Royal Australian College of General Practitioners suggests there is a case for substituting PCR tests with RATs, and saving public funds. The benefit comes from earlier knowledge of infection and people isolating earlier, lessening the spread of the virus.
The government’s approach presupposes that rapid antigen tests are a consumer item rather than a public health consumable. A bit like asking people to bring their own oxygen bottles to hospital. Now that is something we have seen elsewhere.
The Australian Chamber of Commerce and Industry recognises the information value of RAT, advocating free rapid testing will improve business and consumer confidence, assisting in reopening the economy after a series of lockdowns and international lock outs. This will help minimise the extremely disruptive impact of snap closures and held businesses reduce risks to employees, customers and the community.
The government has argued that it does not want to provide ‘free’ rapid antigen tests. However, that is misleading. Publicly provided tests are paid out of taxation revenues. Either way, we are paying for these tests.
I find it difficult to believe that the Commonwealth cannot secure bulk supplies of these tests and distribute them at less cost than I could purchase one at full retail prices.
Also, it is surprising to me that given the extensive use of rapid antigen tests elsewhere, the Federal Government has not provided more effective leadership on this.
The Australian Competition and Consumer Commission is awake to the risk of price gouging and has indicated it will ‘name and shame’ those that do.
With Covid case numbers soaring again, the test and trace systems are simply not up to the task given volumes. Rapid antigen tests provide a viable alternative to enable people to be informed about their own health status and act accordingly. That has to benefit their families, friends and co-workers and, ultimately, the wider society and economy.
I was thinking that we were all in this together. The Federal Government still needs to catch up. We can’t afford another strollout in a fast-moving medical environment. Time and again, we have seen political processes simply cannot match the pace of this pandemic.
Let’s not think Covid has passed just yet. People are still dying.
Thanks to my colleague and good friend, Gene Tunny, for recently inviting me onto his Economics Explored podcast to talk about the circular economy. Listen to the podcast here:
As we increasingly incorporate a lot of the environmental externalities into the incentive architecture of the market economy, opportunities to improve our stewardship of finite natural resources will improve. Not only do we have to do things better, the approach underlying the circular economy encourages us to do better things.
Mid afternoon snap of LA traffic. Usually at this time of day it would be bumper-to-bumper. The Governor of California has ordered the State’s 40 million citizens to stay home, restricting non-essential movements. Source: The Mercury News, CA.
The coronavirus pandemic will have significant impacts on how we design, develop, fund and operate infrastructure. As the pandemic evolves, the nature of these impacts will emerge, creating increasing risks. There is a stark difference between the impact of the Global Financial Crisis (GFC) and this pandemic. The former was initially a financial liquidity impact that affected cash flows around infrastructure investment and operation.
The pandemic’s first impacts are likely to be around the loss of human capacity in the systems that support this complex sector. The near term impacts are likely to be more associated with loss of certainty, affecting planning, operation and funding of infrastructure.
There is a range of considerations; which will have varying degrees of impact on governments, communities, organisations and people.
i) Demand-based assets are vulnerable because of the drop in use as with the coronavirus takes away discretionary spending. This particularly so for transport infrastructure, which directly engages with end consumers. Supply chains for these assets will be affected.
ii) Contracted assets have some increasing counterparty risk. Energy assets, for example, depend on the continuing creditworthiness of their counterparties. Many utility services may be called on by state actors to contribute to the overall effort to address the economic impacts of coronavirus.
iii) Merchant infrastructure potentially faces higher volatility in commodity prices and heightened uncertainty of demand. This kind of infrastructure operates at the margin of markets, rather than profiting from significant baseload provision at low, guaranteed margins. It will vary across markets for infrastructure services.
iv) Some specialised infrastructure has exposure to sports. This group of assets has both contracted and demand-based revenues. In Australia, we see the challenges facing our principal football codes with the loss of stadium revenues. It has exposed football codes that have not been developing multi-year contracts for stadiums and areas, and cannot defer refunds and provide credits for future ticket purchases. Some infrastructure owners have not undertaken sufficient risk analysis to determine the financial reserves for significant events.
v) Expect construction delays and cost increases as labour and material shortages occur, as well as the introduction of appropriate occupational health and safety processes are developed to address coronavirus.
vi) Expect the possibility of some operating underperformance of infrastructure assets associated with possible labour and material shortages. As operating environments are adjusted, with some delays in scheduled maintenance, this should only be a short-term impact. Retaining the capacity to do critical maintenance is essential.
vii) Contractual triggering of force majeure declarations may become more likely. The effectiveness of these declarations will depend on the specific wording in each contract, which may create many disputes around non-performance.
viii) Policy exclusions in business interruption insurance may affect the ability of infrastructure asset owners and operators to respond. Management teams are going to have to think more about internal liquidity policies and how to structure their cash flows in both infrastructure transactions and operations.
ix) The debt position infrastructure owners and operators will be compounded by refinancing challenges. More volatile credit markets mean more considerable uncertainty about the costs of refinancing when it is needed. Understanding debt maturation profiles and alternatives will be essential. Assets with long concession periods or very long useful lives possibly have a better ability to manage their short term debt profiles.
Some of these risks might be mitigated in part by the following:
i) Government intervention is more likely to occur. While some government actions might have adverse impacts. Across a range of infrastructure classes, governments might take interaction to support the overall performance of the economy.
ii) Infrastructure businesses are more protected at the enterprise level. Many firms operate in multiple markets and hold multiple sets of infrastructure assets. Also, many infrastructure businesses operate long-live assets with capex plans that can be modified and significant management discretion on operational tempo and allocation of surpluses.
iii) Infrastructure projects typically have strong capital structures. How cash flows are applied is tied to contractual requirements and ensuring funds flow to relevant parties. This is the core of traditional project financing. Infrastructure projects without recourse to full cash-funded debt reserves are exposed to prolonged delays and a slow economic recovery.
Our response to coronavirus is only limited by our understanding of it and our ability to imagine and execute solutions.
L-R: Nick Behrens, Craig Lawrence, Gene Tunny, Hamish Bain.
Intra regional trade and the effectiveness of 147 active zones (economic, industrial and free) in the Middle East will be under consideration by Lytton Advisory. The firm has been given a mandate to develop advice for the Gulf Cooperative Council Secretariat on the next phase of closer economic cooperation between member states. This will involve a baseline review of existing economic zones, careful analysis of customs arrangements between Gulf states, an examination of World Trade Organisation implications and economic modelling of preferred solutions. Lytton Advisory is looking forward to working with colleagues from Maxwell Stamp in the Middle East, building on engagements in the region over the past three years.
Lytton Advisory 