_Recent Australian Federal budget confirms a strong infrastructure development pipeline

With many engineering and construction companies now much leaner than three to four years ago these companies may now be on the brink of a new phase of expansion thanks to a healthy pipeline of infrastructure projects emerging across Australia.

Jennelle Wilson June 15, 2017

The long-awaited Inland Rail will proceed following commitment to $8.4 billion of equity funding into ARTC
The Federal Government will facilitate delivery of the new Western Sydney Airport through a $5.3 billion investment over 10 years
The recent budget outlines a total of $75 billion in funding allocations for rail and road infrastructure in the 10 years 2017-18 to 2026-27

The 2017-18 Federal Budget made a number of announcements regarding the funding for infrastructure. While many of these were for longer term funding structures, the increased focus on “productivity boosting” infrastructure investment and associated borrowing is a positive for the economy.

Inland Rail

The Melbourne to Brisbane Inland rail project received specific funding in the 2017-18 Federal Budget, bringing some certainty to the long-mooted project. With the idea for inland rail first put forward by the then prime minister Andrew Fisher in 1915, the 1,700km rail link has long been on the infrastructure “wish list” for Australia.

The recent Federal budget has promised an equity investment in the government entity, Australian Rail Track Corporation (ARTC) of $8.4 billion to deliver the project. ARTC have been working in the background for a number of years to finalise the route and undertake some preliminary works for the project. Work to upgrade the first section of track will begin in 2017-18 with the project to encompass upgrades to 1,000km of existing track and the construction of some 700km of new track.

The Inland Rail project is expected to provide the necessary freight capacity to facilitate the forecast 80% growth in freight movements in Australia to 2030 (ARTC), with road infrastructure unlikely to be able to provide this level of capacity. Additionally the route of the Inland Rail, through regional Victoria, NSW and Queensland will allow greater options for agricultural freight and short term delivery to major airports (Melbourne, Avalon, Wellcamp/Toowoomba and Brisbane) for potential international delivery of perishable goods.

National Rail Plan

A $10 billion national rail fund was also announced to fund priority regional and urban rail projects. Already proposed projects such as Adelink (Adelaide), Brisbane Metro, Tullamarine Rail Link (Melbourne), Cross River Rail Brisbane and the Western Sydney Airport Rail link will all be likely to compete for Federal funding under this structure. At this stage $1 billion will be made available during the four year estimates period with the remaining of the announced funding not available until 2020+.

With many of the above metropolitan passenger projects subject to advanced plans and also have demonstrated need in the community it is expected that competition for this funding, particularly within the four year estimates period, will be particularly high.

Second Sydney Airport

The Federal Government has announced the creation of WSA Co which will facilitate construction and delivery of the new airport at Badgerys Creek. The Sydney Airport Corporation, which had a first right of refusal to build the second airport, declined the opportunity to construct the airport, located in Western Sydney.

In the 2017-18 Federal budget a total investment of $5.3 billion over 10 years was announced to fund the construction of the new airport via an equity investment in WSA Co. The WSA Co entity will be established early in 2017-18 and will deliver the facility which will have a 3.7 kilometre runway and a terminal with the capacity for up to 10 million passengers per year. Construction is slated to begin on the site by the end of 2018 with the airport to be operational by 2026. It is expected that the Federal Government Agency (WSA Co) will not be a long term holder of the asset and will offer it to the market soon after completion and/or accept private sector investment and ownership of WSA Co during the construction period.

Additional Measures

Including projects outlined above there is a $75 billion funding allocation for road and rail projects over the ten years from 2017-18.
$844 million for additional improvements to the Bruce Highway in Queensland, particularly for the Pine River to Caloundra section (Sunshine Coast).
In Victoria, a $1 billion package which includes $500 million for regional passenger rail supporting Geelong Rail Line upgrades ($100m), Murray Basin Rail ($20.2m) and Tullamarine Airport Rail Link business case ($30m).
The concept of fast rail projects will continue to be explored with $20 million available to partner with proponents of up to three fast rail projects to develop business cases to better connect regional centers with the major cities.
Regional Growth Fund will be supported by $472 million for local infrastructure projects for regional communities.
In WA the Federal Government will contribute $1.6 billion to a $2.3 billion Federal-State package which will provide $1.2 billion for the METRONET Rail project and $237 million for the Kwinana Freeway which provides access to the Fiona Stanley Hospital and links Perth with Mandurah.
The Federal Government has commenced discussions with the NSW and Victorian Governments to acquire a larger share or outright ownership of the existing Snowy Hydro infrastructure to facilitate a planned “Snowy Hydro 2.0”. The new scheme is slated to increase the generation capacity by 50% with up to 2,000 megawatts of additional renewable energy added to the grid

Outlook

Following the resources boom the engineering and civil construction sectors have faced downsizing as the pipeline of major construction projects was greatly reduced. With many engineering and construction companies now much leaner than three to four years ago these companies may now be on the brink of a new phase of expansion thanks to a healthy pipeline of infrastructure projects emerging across Australia. With both Victoria and New South Wales already in the midst of strong infrastructure construction the recent Federal Budget has consolidated this with additional long term investments across Australia.

For further details on the Budget Infrastructure Announcements view the full report here.