Home' Future Building: The Australian Infrastructure Review : Volume 4 Number 1 Contents futurebuilding 53
Volume 4 Number 1
Peter Harris AO
where consumer willingness to pay overall is not
clear -- will not attract support.
And locking charges in via today's cost recovery
models tells you nothing about the project's economic
or social desirability. It's more like, 'if you build it,
they will pay.'
With greater emphasis currently on bene t cost
analysis (BCA), the creation of business cases by strong
and well prepared accountancy rms, and particularly
with the advent of Infrastructure Australia and gateway
assessments in most state government processes now,
we are improving planning in those inputs.
But where they are simply bolted onto an
otherwise skewed pricing system, the attractiveness
of the investment is likely to be affected.
BCAs are curious creatures when they suddenly
appear in a world of commercial analytics of
Externalities and network effects are very
signi cant in infrastructure investment. And if they
dominate a BCA, there may be very signi cant
differences between the story as told by a BCA and
the story as told by a commercial business case.
And I make this comment quite consciously,
because I regularly see a BCA being thrown around,
as if it is the pre-emptive and primary tool for a
commercial analysis. Most of you will know that's not
the case, but, frankly, it's not commonly explained
publicly in the commentary.
So adding BCAs to a planning process -- a
desirable thing in itself, a very desirable thing -- does
not necessarily help the investment process.
Infrastructure Australia has prepared data on the
BCAs of projects submitted to them.
If you look at it, you'll see that the very largest
projects have quite low BCRs, and the smallest projects
appear to have quite high ones (see graph below).
There are some reasons for those low BCRs:
network bene ts are sometimes very dif cult to fully
capture; transformational gains, like investing where
you are trying to change a whole suburb or a whole
city landscape, are dif cult to fully crystallise.
In Sydney, for example, there is clearly a suburban
revitalisation that took place as a result of the airport
train project. But the train project owners didn't
bene t from that. And the value was almost certainly
underestimated in the BCA, simply because it's hard
to calculate that 'blue sky' potential when you need
to assume that property developers, and, frankly,
foreign apartment buyers, are going to be involved in
a project over a decade or two.
Perhaps, therefore, we can at least agree that
explaining BCRs might be very important to an
investment case -- much more important than is
currently imagined in public commentary. And that's
particularly true where consumers are involved,
where some of the larger road projects, for example,
end up with apparently very low BCRs.
Source: Productivity Commission
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