5.31 The Prioritisation Methodology had outlined the key steps that would be taken to determine the Priority List once all submissions and subsequent advice had been received. This methodology was promoted as providing:
an integrated framework that harmonises the information and data resulting in a balanced range of initiatives and uses cost‐benefit analysis (CBA) as the primary tool for prioritising initiatives. The aim of the methodology is to be:
• Logical and well defined - as it is systems focused and based on and conforms to Infrastructure Australia's aims, objectives, strategic priorities and principles;
• Clear and transparent - as it promotes the open sharing of information;
• Evidence driven - as it uses quality and suitable data and consistent tools; and
• Robust - as it is comprehensive by looking through multi‐lenses to solve a complex problem.145
5.32 The Prioritisation Methodology had further outlined that the selection of projects to be included on the Final Priority List would 'integrate the profiling and appraisal assessments and other data and information'146 and reiterated that the process would 'use objective cost‐benefit analysis as the primary driver of decision‐making'.147
5.33 In publishing the Interim Priority List, Infrastructure Australia noted that projects with a comparatively low BCR or with no cost‐benefit assessment evidence had not been included in the list of 94 projects.148 However, there were also a significant number of projects included in the Interim Priority List that had a comparatively low BCR or where the proponent had not provided sufficient evidence to enable Infrastructure Australia to assess the BCR that had been submitted.149 Accordingly, an adequate economic appraisal was not applied as an eligibility criterion for inclusion on the Interim Priority List.
5.34 Publication of the Minimum Information Requirements document (released in December 2008 in conjunction with publication of the Interim Priority List) was aimed at obtaining more comprehensive and detailed information from proponents to support the economic cost‐benefit analysis of projects on the Interim Priority List (as well as further information on project deliverability risks, governance arrangements and timing). Accordingly, the Minimum Information Requirements document reinforced the importance of projects performing well in an economic appraisal in order to be included on the Final Priority List.
5.35 The project summary documents prepared by the Office of the Infrastructure Coordinator for the Council's consideration were also consistent with the published Prioritisation Methodology's emphasis on economic appraisal. Specifically, they comprised:
• a description of the project, proponent and costs estimated by the proponent;
• the results of the Office of the Infrastructure Coordinator's profiling assessment;
• a summary of the Office of the Infrastructure Coordinator's analysis of the quality and rigour of the economic cost‐benefit analysis provided by the proponent and the Office of the Infrastructure Coordinator's estimated BCR for the project after adjusting for any methodological shortcomings in the proponent's approach; and
• a deliverability assessment outlining whether the project had adequately justified the need for Commonwealth funding, explored potential alternative funding sources and market/pricing options, risks had been appropriately analysed and appropriate governance structures proposed.
5.36 Of particular note was that the Office of the Infrastructure Coordinator continued to propose that cost‐benefit analysis (through a BCR) be used as a primary driver of decision‐making. Specifically, the Council was advised at its 30 January 2009 meeting that the Office of the Infrastructure Coordinator proposed that a BCR value of 1.5 be used as a minimum benchmark for a number of reasons, as follows:
First, the judgement is that unless projects can establish a reasonable margin for success then it is unwise to pursue a lower figure or we risk funding projects that are in reality not economically viable. A higher figure would raise the bar too high. Given considerable lack of confidence in a number of the cost estimates we would be wary to proceed on BCRs less than 1.5 but this is a judgement to be assessed by the Council.
Second, this is a comparative exercise. The higher the BCR, the greater the economic, social and environmental return to society for each public dollar invested. In some ways it is odd to focus on the minimum benchmark - we should really be focusing on the projects at the top. If we wish to prioritise projects with lower BCRs, we will need to explain carefully why we think those projects are better than those with much higher BCRs.
Third, we believe that it is important Infrastructure Australia send a strong signal about its expectations.
Finally, there is of course an argument that BCR does not always predict the future perfectly and a few projects with low BCRs do prove to be worthwhile. However, our view is that the balance of risk in Australia at the moment is not that good projects are being missed due to low BCRs - but the opposite: that too many poor projects are going ahead because policy makers are not listening to the poor BCRs or that marginal BCRs are too optimistic and the benefits are never realised.
5.37 The Office of the Infrastructure Coordinator's proposed approach of focusing on projects with a BCR above 1.5 was not endorsed by the Council.150 As a result, a number of projects included on the Final Priority List were assessed as being likely to have a BCR below 1.5, or the absence of information from the proponent meant an economic appraisal was unable to be conducted. In June 2010, the Chair of the Infrastructure Australia Council informed ANAO that:
All Priority Projects were assessed as having a BCR of above 1.5;151 however it was never the intention that all Pipeline Projects should have a BCR of above 1.5, or indeed have a BCR at all.
5.38 However, the Prioritisation Methodology published in 2008 did not contemplate that a project without a robust economic appraisal would remain a candidate for inclusion on the Final Priority List, or outline any criteria that would be applied to such projects in lieu of their BCR being used as the primary driver of decision‐making. In October 2009, Infrastructure Australia published guidelines for submissions to be made during 2009-10 to update the National Infrastructure Pipeline (that is, the list of pipeline projects). These guidelines continued to advise stakeholders that its evaluation process involves three phases (strategic fit and profiling, economic appraisal and deliverability assessments) and that:
The appraisal component of Infrastructure Australia's infrastructure planning process adopts 'monetised' cost‐benefit analysis as its core tool. This is complemented by 'non‐monetised' effects. Together, a picture of the full economic, environmental and social merits of each initiative can be determined.152
5.39 Accordingly, the published guidelines state that proponents must, among other things:
Submit robust and objective Benefit‐Cost Analysis which is supported by strong evidence. In order to demonstrate that the Benefit‐Cost Analysis is indeed robust, full transparency is required. In addition, substantial supporting evidence to demonstrate that the input data underpinning the Benefit‐Cost Analysis - notably the demand/price forecasts, and capital/operational costs are justified - is also required. Clearly, independent verification of these elements will offer a greater degree of confidence that the data is robust.153 [Emphasis as per original]
5.40 However, the guidelines do not identify the criteria that will be applied in deciding which projects will be identified as priority projects, and which will be identified as pipeline projects that require further development before they merit being considered for Commonwealth funding. As outlined above, and summarised in Table 5.1, different criteria were applied in identifying priority and pipeline projects for the Final Priority List published in May 2009.
Table 5.1 Criteria for including projects on the Final Priority List
'Three pillars' outlined in the September 2008 Prioritisation Methodology and December 2008 Minimum Information Requirements |
|
|
Profiling: the fit with Infrastructure Australia's seven strategic priorities. | Fit one of Infrastructure Australia's seven themes for action. | |
No equivalent | Are of national significance. | |
No equivalent | Make a clear and positive contribution to Australia's policy goals. | |
| Demonstrate significant long-term national benefits to Australia (all projects' economic cost-benefit ratios are very significantly above 1:1 and some are above 2:1). |
|
| Demonstrate robust delivery mechanisms to ensure they can be successfully implemented. |
|
Source: ANAO analysis and advice from the Office of the Infrastructure Coordinator.
___________________________________________________________________________________________
145 Infrastructure Australia, Outline of Infrastructure Australia's Prioritisation Methodology, 24 September 2008, p. 3.
146 ibid., p. 5.
147 ibid., p. 4.
148 Infrastructure Australia, A Report to the Council of Australian Governments, December 2008, p. 67.
149 For example, the Bruce Highway Upgrade (Brisbane to Cairns) project was included in the Interim Priority List with ANAO analysis indentifying that an economic appraisal had not been undertaken in respect to that project. In December 2009 the Office of the Infrastructure Coordinator advised ANAO that: 'No appraisal document was required for the Bruce Highway (Brisbane to Cairns) because the submission did not provide a cost-benefit analysis and therefore the appraisal step of the evaluation could not be carried out.'
150 This was reflected, for example, in the Chairman's 7 May 2009 letter to the Minister transmitting the Final Priority List wherein it was stated in relation to the nine priority projects that: 'all the projects' economic "benefit-cost ratios" are very significantly above 1.1, and many are above 2.1'.
151 Eight of the nine priority projects had a BCR of 1.5 or above. One (the East-West Rail Tunnel project in Victoria) was assessed by the Office of the Infrastructure Coordinator as having a BCR below 1.5 (excluding WEBs), with the Office of the Infrastructure Coordinator's assessment being that the claimed BCR (including WEBs) of 1.8 was optimistic and, on a more conservative view, the BCR including WEBs was assessed as being around 1.5 See further at paragraph 4.18 in respect to the general approach taken to WEBs.
152 Infrastructure Australia, Better Infrastructure Decision Making: Guidelines for making submissions to Infrastructure Australia's infrastructure planning process, through Infrastructure Australia's Reform and Investment Framework, October 2009, p. 21.
153 ibid., p. 20.