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2000 Workshops

Prepared by Claire Braund

The Regional Institute www.regional.org.au

Financial planning workshops held in the diverse regions of Townsville, Bendigo, Nowra, the Barossa Valley and Dubbo between May and July 2000, proved that ideas, enthusiasm and business acumen are flourishing in regional Australia. However, communication, negotiation and management skills could be improved.

People travelled up to four hours to the workshops, to learn skills to attract public and private sector funding for regional infrastructure projects. About 140 people attended the four workshops, from the private sector and state government agencies.

The workshops were funded by the Department of Transport and Regional Development.

Background

The workshops were held in response to findings from a 1997/98 program that took institutional investors into 18 regions to directly explain their needs to proponents of infrastructure projects. Investors explained the sort of information, project analysis and presentations they required to consider funding regional projects. They also assessed 68 local projects, but significantly did not consider any to be investor ready. This was attributed partly to a lack of financial and business planning skills. A training program to assist regional proponents to get projects to an acceptable standard to meet the requirements of government and institutional investors was then endorsed. This became the 2000 workshop series.

Summary of findings

Recommendations

  1. A national framework should be established to:
    1. assess infrastructure requirements in regional Australia;
    2. identify the role of government in funding the social component of projects;
    3. facilitate incremental investment in infrastructure development;
    4. develop a clear policy on the issue of public/private sector partnerships; and
    5. review the funding process
  2. Workable models should be available to enable proponents to navigate the commercial, official and political pathways involved
  3. Develop a register of investors, qualified regional financial analysts and project brokers to 'bridge the gap' between the proponents and the investors.

The team

The workshops were organised by Claire Braund and conducted by Dr Peter Abelson and Dr Glenn Withers AO (Bendigo and the Barossa Valley).

Ms Claire Braund

Claire is a Director of RuralWeb Pty Ltd, an electronic publishing and public relations company, and The Regional Institute, a not-for-profit organisation set up to stimulate and capture ideas and strategies for regional Australia. She has a BA (journalism) and is a member of the Public Relations Institute of Australia.

Claire has worked in journalism, management and strategic communication planning in the corporate, government and agricultural industry sectors. She has consulted to NSW and Commonwealth Government agencies, a major political party and private corporations, and worked for Rural Press, Cotton Australia and the Australian Beef Association, of which she was founding Executive Officer. Claire specialises in communicating with people living in regional communities, in particular in the application of web-based technology.

Dr Peter Abelson

Peter is a Director of Applied Economics Pty. Ltd. and Associate Professor in Economics at Macquarie University. He has a Ph.D. from London University and an MBA from Edinborough. Peter has worked at a national and international level on financial and economic analyses of many infrastructure projects in transport, power, water supply and quality, urban infrastructure and housing, and in health services. Peter also has experience in local government, having been elected a councillor of Mosman Council in Sydney for eight years, including two years as Mayor. Projects Peter has worked on include.

2000

Commonwealth Department of Health and Aged Care: Report on returns to public health programs to reduce coronary heart disease, lung cancer, infectious diseases, HIV/AIDS and road trauma.

 

Australian Heritage Commission: Analysis of economic benefits of heritage listing.

1999

Asian Development Bank: Preparation of manuals on urban environmental management for workshops for mayors of 52 large Chinese cities.

1998

Commonwealth, NSW and ACT Governments: Economic evaluation of proposals for a very high speed train from Sydney to Canberra.

1997

NSW Roads and Traffic Authority: Economic evaluation of proposed Gore Hill - M2 freeway link.

1994

National Transport Planning Taskforce, Canberra: Report on evaluation methods and decision making for investment in rail, road, port and airport infrastructure.

Dr Glenn Withers AO

Glenn is a Director of Applied Economics and a Professor of Economics at ANU. He has a B.Ec.(Hons) from Monash and a Masters and Doctorate in Business Economics from Harvard University. Glenn an experienced public and private sector adviser and consultant, having consulted for agencies ranging from the OECD and New Zealand Treasury to the Business Council of Australia and the Victorian Premier's Department.

Glenn has chaired four major Federal Government inquiries (immigration, infrastructure, population, microeconomic reform), and has held professorships in several Australian universities - in economics and in public policy. In1991 he was made an Officer of the Order of Australia for services to applied economics. Between 1991 and 1996 Glenn chaired the Economic Planning Advisory Council Task Force on Private Sector Involvement in Public Infrastructure, which reported directly to the Prime Minister.

The workshop papers

"Preparing Business Plans and Economic Feasibility Studies for Private Sector Infrastructure Provision", the workshop paper presented by Dr Peter Abelson are available on this website. The paper is a comprehensive overview of how to prepare a business plan and the methods of financial evaluation used to assess infrastructure projects.

Key points

Project development (the three silos)

Dr Glen Withers focussed his presentation on the actual process of getting a project off the ground, which he identified in three steps.

  1. Commercial: Preparing the business plan
  2. Official: Costing the business plan, social and community implications
  3. Political: Ministers, media, interest groups. How does the project benefit people in the area? What are employment effects? Will the project use up pool of unemployed labour or will it take away from the existing workforce? What is the point of difference of this project? How can it be leveraged?

Potential stalling points (PSPs)

Between silos one and two there exists what Dr Withers describes as "mutual incomprehension" while silo three is often neglected. This is the period for lobbying and advocacy to 'sell' the project. Overcoming these PSPs can be the most difficult part of getting a project funded and should be carefully addressed as part of an overall holistic approach to the project.

Find a champion

Regardless of how well your project stacks up financially you will need to overcome the organisational and communication barriers between all three silos if your project is to succeed. Some keys to this are:

You may also need someone doing last minute lobbying for the project in the relevant State or Federal Houses of Parliament. Lobbying your project onto a Minister's desk with a polite letter is unlikely to meet with success. Someone needs to be hustling on your behalf.

This is often someone whose professional job is as a lobbyist or advocate - a hired gun. Major companies use advocates all the time, often to oppose developments that may impact on their existing business. This person usually has influence and/or experience with the political process - often an ex-staffer, the head of a Department or a former politician. It is wise to do some homework on the current state of relations between various lobbyists and ministers/politicians/department heads before employing someone to work on your behalf.

When Government's hire lobbyists they tend to go to firms run by ex-departmental secretaries as there is a cultural fit. The private sector invariably hires those firms run by people who have worked in the private sector. Ironically the opposite approach would probably be more effective in terms of bridging the communication gap.

The political lobbyist is sometimes the same person as the local champion or broker, as politicians would often prefer to deal with someone who is hands-on with the project and representative of the regional community. A complementary strategy can sometimes be the best option, with a champion/broker working at the local and regional level and a political lobbyist being hired for the last stage.

Townsville Workshop

May 4th 2000 at The Southbank Hotel and Convention Centre

Snapshot of the local economy

The Townsville/Thuringowa region is the major development hub of North Queensland and one of the most dynamic areas in Australia. It has an economic growth rate of 5.7% per annum, double that of the national average. Forecasts suggest that the growth rate of Gross Regional Product will remain strong, with per capita GRP expected to approach $35,000 by the year 2006.

Approximately 140,000 people live in Townsville and Thuringowa, making the twin cities more populous than Carins, Mt Isa and Darwin. The population is younger than the Qld average, with 35% of residents falling within the 15-34 age bracket. Unemployment remains static at around seven per cent.

The region has a diverse economic base (see list below) and is resilient to market fluctuations. As the closest port city to the vast mineral wealth of North Queensland it is a major exporter of zinc, copper, lead, silver and gold. Nickel ore is imported and processed for export. In the past two years more than $1 billion has been committed to mineral processing in the Townsville region.

Manufacturing, public administration and trade are the major contributors to the Townsville regional economy. Public administration and defence accounts for 11.2% of employment, an exceptionally high figure for a regional centre which can partly be attributed to the Lavarack Army Base, Australia's second largest.

High growth was recorded in the industry sectors of accommodation and restaurant, government administration and defence, electricity, gas and water, cultural and recreational services, professional and health and community services in 1999.

Main industries

Proposed projects and areas of opportunity

Issues relating to infrastructure development

Power

Transport

Telecommunications

Water

Economic

Key findings from the workshop

The workshop demonstrated that many proponents of regional infrastructure projects have the necessary skills to write a business plan or perform a cost benefit analysis. What they appeared to need was knowledge of where to find investors who are interested in funding regional projects and organisational/management and communication skills in order to push their projects through. There is a high level of recognition that making sure the numbers add up is not sufficient to make the project work.

The Townsville workshop clearly identified that in many instances worthwhile regional infrastructure projects will not attract funding from private investors as their internal rate of return is insufficient. Three case studies, two on transport and one on water, were discussed. In two instances (rail link between two existing railway lines and Eastern Access Corridor) the group felt that there was not sufficient economic justification to fund the projects.

This may have been because all opportunities from making a return from these projects had not been considered, but was more likely to be that the return on investment as measured under current economic analysis is not there, despite the obvious community and social benefit. This raised the issue of how social and community benefits can be recovered by a private investor? Is this the role of Government in a joint funding situation? It was felt that more discussion is needed on how to get projects off the ground is needed.

Some projects were regarded as viable, but were contingent on a driver, such as an identifiable market. In the case of the Elliot Main Channel and dam options such as the Burdekin Falls Dam Stage 2, Hells Gate or Urannah Dams, overseas markets, particularly for horticultural products, needed to be locked into place.

In all instances there appeared a lot of chicken and egg situations. For example, the Chevron gas pipeline from PNG was dependent on there being enough demand for gas in the Queensland coastal areas it will travel through. However, the development of many projects, including the power station at Townsville, is seen as being dependent on the gas from PNG.

Information

There appears to be a high level of cooperation between Townsville Enterprise Limited, Queensland Department of State Development, other Regional Development Organisations, Chambers of Commerce and various private and publicly owned enterprises, such as the Townsville Port Authority. This was reflected in the amount of information available on Townsville and the regional economy, including a list of proposed projects for prospective investors from Townsville Enterprise Ltd. This coordinated approach to information management contrasted sharply with some other states.

Bendigo Workshop

May 11th 2000 at The Bendigo Regional Arts Centre

Snapshot of the local economy

Bendigo is predominantly a manufacturing and service centre for the surrounding agricultural and mining industries. Approximately 90,000 people live in the city and immediate region. Close proximity to Melbourne is both a benefit and a problem as business and funding for development proposals can sometimes pass by to regional areas further from the capital. Tourism is becoming increasingly important as the region works to diversify its traditional economic base.

Main industries

Proposed projects and areas of opportunity

Government priorities

www.vic.alp.org.au/policy/industry

Issues relating to infrastructure development

Economic

Key findings from the workshop

  1. There is a need for significant improvements in communication between those looking for money to fund regional infrastructure projects and those with the power to grant or lend money. This gap was found to exist principally between people or groups at the regional level and the government bureaucracy and politicians.
  2. It is import to have an advocate or champion for a project who can "bridge the gap" between the regional proponents and government and politicians.
  3. Improved organisational management within projects is required.
  4. Current financial measurement standards mean that the majority of regional projects will not attract a high enough rate of return for a private investor. Government funding under a community service benefit or obligation is required for the majority of regional infrastructure projects to get started.
  5. Lack of communication could be hampering efforts at the regional level to adopt the public/private partnering approach to infrastructure development.
  6. There is a need to document the process of developing regional infrastructure so workable models can be widely circulated and adopted by others. This particularly applies to Government funded projects.
  7. Need for a register of regional analyists who are accepted by Government and the private sector as the experts in assessing the viability of regional infrastructure projects.

Case Study

Telecommunications

The group discussed the local telecommunications problems (price and access were the two main issues) and options for addressing this. Microwave or partnering with a group such as Austar to use satellite cable services was considered. It was felt a group partnership approach would be the best. Reference to the Gippsland Model, developed using Networking The Nation funding. Concerns were expressed that the funding does not establish and document a process that can be used by other applicants.

To establish a local Telco it was felt that funding should be sought from the Government for a pilot project to develop a working model for investing in infrastructure to then apply across the spectrum.

Solutions pathway

Nowra Workshop

May 18th 2000 at Worrigee House

Snapshot of the local economy

Nowra is a diverse economy on the South Coast of NSW. The city has a population of approximately 85,000 and its council is one of the largest in NSW, giving a high degree of leverage on projects. Nowra is similar to Townsville in that it has a large public administration sector, boosted by its military base. The area is a well known and popular retirement place and tourist destination.

Main industries in the Illawarra region

Proposed projects and areas of opportunity

Issues relating to infrastructure development

Transport

Telecommunications

Water

Tourism

Other

Economic

Key findings

  1. Establish a register of investors and the scale of their interest in regional projects.
  2. Consider adopting a lower rate of return for regional infrastructure projects
  3. Incremental investment in infrastructure development needs to be given greater consideration.
  4. Regional areas should focus on attracting private investment for smaller projects and let Government fund major infrastructure (eg. Roads).

Case Studies

Telecommunications

A group comprising Shoalhaven City Council, the University of Wollongong and other councils in the area are facilitating a proposal for a regional Telco to provide high speed bandwidth capability to the region for health, education and business services. The Department of School Education is a vital partner and a commercial carrier and technical partner have been identified for this $50+ million project, which is expected to be up and running by early 2001.

Under the proposal, a one gigabyte network would be created as a backbone between Sydney and the Victorian border. All businesses in the CBD would have direct access to the high speed network, while Points of Presence at local hubs would give residents within three to five kilometres local access. The last link, to villages in outlying areas, would be provided on existing copper wires, but still at single unit price.

High speed transmission of data sets, such as maps, medical images and financial/inventory information, would be made possible under the proposal. Also video conferencing for education, health and business purposes.

Sewerage

When Shoalhaven Council proposed to build an upgraded sewerage reticulation/reuse system to prevent effluent from going to ocean and river outfall, they asked the community to support a $150 levy per ratepayers to fund the project which was supported by the community.

At the workshop the question was asked, are private investors interested in funding similar projects?

Barossa Valley Workshop

May 25th 2000 at All Seasons Premier Barossa Valley Resort, Rowlands Flat

Snapshot of the local economy

The Barossa Valley, north of Adelaide in South Australia, has a population of 28,649 which is almost 2% of the State's population. The area is an old agricultural area that now boasts wine and tourism as its major industries. Approximately 240,000 tonnes of grapes are processed in the region each year. This is predicted to rise to 530,000 tonnes in 10 years time, with the expansion of existing wineries, such as the 75,000 tonne capacity Mildara Blass,. and the development of new ones,

According to Development of Industry and Trade, all infrastructure in the area is struggling to keep pace with the rapidly growing wine industry. With each tonne of grapes moving 6.5 times between picking and bottling, there is currently more than one million tonnes of produce on the roads. If the forecasts are correct this could double in 10 years. A maze of winding two-lane roads service the main wine growing region, which is clearly inadequate for the number of heavy vehicles required to move wine products around.

Water, residential and human infrastructure also need to be reviewed and updated as the region grows. In 1999 a large four star conference and accommodation venue (All Seasons Premier Barossa Valley Resort) opened at Rowlands Flat, in recognition of the demand for this type of service.

Main industries

Proposed projects and areas of opportunity

Issues relating to infrastructure development

Transport

Power

Water

Telecommunications

Government

Key findings

The Barossa Valley Workshop again demonstrated that most participants were reasonably skilled in financial and business planning, but lacked knowledge on how to coordinate the commercial, official and political silos. This was apparent when the group looked at the Padthaway Water Project, from the southeast of South Australia, which has had a gestation period of eight years and is still waiting final Government approvals.

There was a high level of knowledge among participants about the requirements for infrastructure in the Barossa, but also frustration that so many people with good ideas couldn't make them happen. Government representatives made it clear that infrastructure development is no longer the sole domain of Government, but were keen to maintain a coordinating role.

Case study

Padthaway Morambro Creek Aquifer Recharge Scheme

This case study looked at how to assist Padthaway growers to divert water from Morambro Creek, which flows intermittently every two to three years, to the aquifer in times of high flow. The purpose is to dilute the saline water in the aquifer.

The project was started by a group of grape growers eight years ago and a Stage One study has shown that the project is feasible. Before Stage Two, a detailed costing and consideration of alternatives, is started the group needs to get a commitment from the Government that they can use water from Morambro Creek. An allocation plan will then need to be done by South East Water Catchment Management Board which will take a further two years.

The group has had several discussions with Ministers, politicians and bureaucrats about the project but feel they have made little progress. Discussion about the project centred on strategies to speed the process up by looking at all three silos simultaneously. Recommendations from the group included:

Dubbo Workshop

August 10th 2000 at Western Plains Zoo

Snapshot of the local economy

Dubbo is a large regional service centre in western NSW with a population of approximately 35,000. It has a strong small and medium sized business economy, supporting agricultural, mining, tourism and other activities in the region The major employer in Dubbo is Fletcher's, Australia's largest sheep-meat processor. The city is the major transport hub in non-urban NSW lying at the junction of the Newell and Mitchell Highways. It is mid-way on the north-south route for freight and passengers travelling between Melbourne and Brisbane and Sydney and Perth. A main attraction for Dubbo is the Western Plains Zoo, making it a natural stop-over point for most travellers to inland NSW and a primary regional conference/meeting venue.

Main industries in the Dubbo region

Proposed projects and areas of opportunity

Issues relating to infrastructure development

Transport

Telecommunications

Regulatory issues and Government approvals process

Conference industry

Economic

Key findings

  1. Outline the steps involved in the process of funding regional infrastructure - the commercial, official and political stages of a project.
  2. Set up an information service for people involved in infrastructure projects.
  3. Investigate the impact of the regulatory and approvals processes on regional infrastructure development.

Case Studies

Agricultural Change Project

The development of an agricultural change project incorporating high-value industries such as hydroponics with an international air-hub at Parkes in western NSW. The project has been driven by 53 NSW Councils and has had a lead time of five years. The workshop heard that it has cost almost $2million in meeting Government requirements and lobbying. Hold-ups have been significant.

Dubbo - Tamworth Gas Pipeline

The construction of a gas pipeline between Dubbo and Tamworth by AGL has apparently stalled due to unrealistic expectations by the Independent Pricing and Regulatory Tribunal. For the pipeline to proceed, AGL would have to be allowed to charge customers a higher price for gas than IPART will recommend.

The IPART determined price will give the pipeline project an expected rate of return of 7.8% - well below market requirements for the level of risk required for this sort of investment. Consequently AGL cannot finance the works from new capital raising without reducing the rate of return to a level not acceptable to shareholders.

The NSW Government does have flexibility with regard to the user prices recommended by IPART in the water, energy and transport sectors, but is unlikely to allow higher prices than it recommends.

Workshop participants felt that this unrealistic price setting by IPART should not be allowed to prevent the development of important infrastructure to regional Australia. The level of demand (ie market requirements) should determine the price charged by AGL for gas.

Relocation of Dubbo rail freight facility

The Dubbo rail freight facility is currently located in the centre of the city where it disrupts traffic flow and causes safety concerns for residents. Dubbo City Council has proposed to relocate the railhead to a site north of the city and integrate the move with complementary infrastructure. Several studies and reports have been done and a stalemate has been reached as a result of conflicting priorities and agendas.

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