Mr Mike Mrdak, 12 June 2015 address to the AFR National Infrastructure Summit

The difficulty of planning and investing in productive infrastructure—Western Sydney airport

It is just over a year since the Australian Government announced that Badgerys Creek would be the site for a Western Sydney airport.

Construction is planned to commence next year and it is anticipated that services will commence by the mid-2020s.

The decision to proceed was a critical one, as it ended 60 years of debate on the location and timing of the project.

A Western Sydney airport will be one of the biggest and most exciting civil engineering projects that has been undertaken in Australia in recent times.

As the Reserve Bank Governor commented this week, Infrastructure is one of the biggest stories in town in public policy.

This is an exciting time in infrastructure policy. Since 2001, Australia has doubled public infrastructure investment spending as a percentage of GDP. This has seen a sustained period of investment over the past decade.

But the commentary by RBA—and speakers at this conference—also reflects the difficulty of planning and delivering good long-term, economically productive public infrastructure in Australia.

This conference has heard a lot of discussion about the problems in planning and investing in infrastructure—especially ensuring good evidence-based long-term planning and transparent project investment decisions. This has been a good, healthy public airing of such issues.

But public coverage rarely deals with good, successful projects being delivered—and there are many. In New South Wales alone, the Pacific Highway duplication has seen innovative delivery and contracting completion with full funding settled. Moorebank, a public-private partnership on rail freight and port capacity, Westconnex, airport investment—Australia is a global success story in terms of private investment.

And I would argue the Sydney West Airport decision last year and the delivery process are actually a success story in dealing with many of the issues raised about reforming our planning and project development processes.

The investment is timely and meets the macro-economic growth challenge we face in the next decade. The 2015 Federal Budget sets the context of why the construction and timing of the delivery of this project are critical to meeting the challenges that we as a nation face in the coming decade.

Our growth challenge remains enviable but difficult. Australia is now in its twenty-fifth consecutive year of economic expansion and is forecast to increase its growth path. But it is clear that economic performance varies across our regions and our competitiveness and low rates of productivity growth must be addressed.

Investing in the right infrastructure has an important role to play in meeting this challenge. Public investment in infrastructure is not an end in itself—it contributes to our national productivity growth and assists our economy's transition to broader based growth beyond the resources sector.

We also face the problem many globally would like to have: growth itself.

Domestic freight demand is expected to double from 2010 levels by 2030, air passenger movements will increase to 279.2 million per year over the same time period, Australia's population will jump to 37.6 million by 2050, and Sydney and Melbourne will both have populations of around 8 million people in the same year.

If we do not invest in infrastructure to meet these needs, our productivity and our economic competitiveness will suffer.

We need to address rising congestion in our major cities and the lack of connectivity in our regions. However, increased public investment has to be on the right projects to be effective and provide the national income and productivity lift we need.

In the past year two key reform-guiding reviews have been completed that look to set out the reform agenda for infrastructure investment.

Firstly, the Productivity Commission's 2014 review of infrastructure investment highlighted a fundamental need for an overhaul of long-term public investment planning and project selection.

This review made it clear that we do not have effective, rigorous and transparent planning and project selection processes, including cost-benefit analyses and public evaluation reporting.

Secondly, in May, Infrastructure Australia (IA) released the first national audit of Australia's infrastructure. This audit showed that our public planning and investment processes need to be better at long-term planning and analysis.

The audit highlights that we need to better address uncertainties such as the implication of demographic change on transport demand and public finances, structural shifts in our economy, spatial and land-use shifts in our cities, and where future jobs will be relative to where we are placing our housing supply.

IA found that Australian governments need to better integrate land-use and infrastructure planning efforts. We also need to develop improved mechanisms for sequencing greenfield building and redevelopment and supporting infrastructure in our cities.

These two reports identified key policy areas that we need to get right if we are to deliver the maximum benefit possible.

Fundamentally, we need to ensure that our planning and project selection processes are on consistent and evidence based. The IA Audit and Plan and the State Plans are the right first step.

It is similarly important to invest in the right productive infrastructure that will underpin growth while recognising that lifting public investment spending is not an end in itself—it has to support growth.

So where does the proposed Western Sydney airport sit against these reform challenges?

The Western Sydney airport decision is actually the outcome of an integrated long-term transport and land-use planning process.

The project has a long history: at least four site selection processes, three EIS (Environmental Impact Statement) processes and a long history of commitments and deferrals.

But the critical decision last year ended the debate over the location of the airport site.

Importantly, the decision followed a rigorous joint Australian and NSW government review of Sydney's aviation needs.

In 2009, my Department, along with NSW agencies, began analysis on the aviation capacity requirements of the Sydney region. But it did not start from the premise that we had an aviation problem at Sydney (Kingsford Smith) Airport and had to find additional airport capacity as the key outcome. The study recognised that Sydney Airport could increase its capacity and would continue to grow, but that it had significant limitations on its ability to meet Sydney's long-term capacity needs.

We took a detailed look at how the region was going to grow over the next 50 years and whether current infrastructure could meet that demand. We examined aviation facilities from Newcastle to Canberra.

What we found is that some would be able to cope with the expected growth and others, like Sydney (Kingsford Smith) Airport, would not.

To meet future demand, we identified a range of infrastructure activities that could be undertaken to provide for better utilisation of existing assets.

This included providing better road and rail access to Sydney (Kingsford Smith) Airport, protecting corridors around Canberra and adjusting the takeoff and landing cap at Newcastle.

We also identified the need for a second airport for Sydney, as Sydney (Kingsford Smith) Airport would reach peak capacity by around 2030 and the economic loss for Sydney, and the nation, would be significant.

According to the joint study, by 2060, under a do-nothing approach, nearly 80,000 jobs and $34 billion in gross domestic product would have been foregone.

In the absence of this project, the inability of Sydney Airport to meet forecast growth would result in economic costs, including increased delays for all operations, higher costs for passengers and reduced capacity to grow new air services.

A Western Sydney airport will also grow new aviation markets to and from Western Sydney.

All of this was evidence-based gap analysis—identifying the infrastructure we had, identifying the infrastructure we needed (if any), when to build it, and how to better use it.

Importantly, it did not take an aviation capacity perspective but rather looked at Sydney's demographic, spatial and jobs growth, and looked at what infrastructure was required to meet these forward projections.

This publicly released analysis underpinned the decision last year when the Government determined Badgerys Creek as the site for a second Sydney airport based on the work of this report.

A Western Sydney airport is being planned and designed to maximise economic development and jobs in the growth region of Western Sydney.

Infrastructure projects create jobs; they generate long-term social and economic benefits; and, if well planned, sustainably financed—in other words done right—they serve community needs for years to come.

This project would create over 4000 jobs in the short term through construction work and in the all-important long term, tens of thousands of jobs could be supported in and around the airport precinct.

In the past, airports were seen as transport hubs for moving goods and people from one region or country to another. Not so today. Airports are now business destinations in their own right and provide a powerful economic engine for their region and local communities.

Increasingly, airport precincts are home to business and industrial parks; information, communications and technology complexes; retail centres and hotels.

By 2060, an airport for Western Sydney has the potential to increase national gross domestic product by almost $24 billion, and while most of the benefits would flow to Western Sydney, the project also promises major benefits at a state and national level.

Importantly, in our view it is one of the few investment projects that can change the flow of jobs in Sydney: that actually will provide jobs in the west and bring other businesses to the west.

At present, Western Sydney is home to one in every two Sydneysiders and is Australia's third largest economy.

A community with a population of over two million, growing by 2050 to 4 million should have its own international airport.

A Western Sydney airport would serve the community and would be a major catalyst for investment and tourism opportunities in the region for decades to come.

Within two decades alone, the number of people in Western Sydney will grow by almost one million—this growth is far more rapid than can be expected in any other part of Sydney.

It is forecast that unless we can make some important changes Western Sydney would account for two thirds of Sydney's population growth but only one third of new jobs.

While Western Sydney will host the bulk of Sydney's population growth, without significant job-creating infrastructure at the same time, many of the challenges Sydney faces, including congestion, excessive commuter times and a lack of jobs close to growing population centres, will be at their most pressing in Western Sydney.

We all know the drain on productivity caused by urban congestion and the need to align jobs and transport in our major cities. Around one third of Western Sydney's resident workforce travels to other parts of the city to get to work.

The Badgerys Creek site is ideally positioned, being adjacent to a large planned industrial precinct, the Western Sydney Employment Area, to the north, which is expected to house tens of thousands of jobs within the next 30 years.

An airport would not only connect Western Sydney to the world, it would provide jobs closer to where people live. With an airport and the right road infrastructure, it would open opportunities for business in Western Sydney.

But to deliver these benefits and maximise an airport's potential, we need to get the project right, from the initial planning and community consultation phases through to funding, construction and delivery.

Accordingly, the airport project is being integrated into the planning and delivery of access links and employment land for new businesses in the region.

This means that before the first plane takes off, a land transport network will be open to traffic and ready to service an airport precinct.

Major road upgrades funded under the Western Sydney Infrastructure Plan will provide world-class transport connections to an airport, which will also support Western Sydney by slashing travel times for residents and creating thousands of jobs during construction.

Initial works have started on a $3.6 billion roads package in partnership with the NSW Government. Roads will be in place by 2022 ahead of the airport opening.

This incorporates a $200 million local roads package that will address Western Sydney's jobs deficit and congestion in the shorter term, along with major road upgrades and the building of an airport motorway.

The airport arterial and local road network will link to Sydney's major motorways, easing congestion, improving safety and reducing travel times, while allowing for the additional traffic that would be associated with an airport.

Finally, the project is being delivered as a public-private partnership and structured to avoid being a white elephant.

For the first 20 years or so, the airport would only require one runway, large enough to handle a range of aircraft and both domestic and international services.

Master planning is underway for an airport with parallel runways and capacity for over 100 movements per hour on a parallel runway system.

The first stage would consist of a 3700 metre by 60 metre runway built to Code F standards and capable of handling any current or expected long-haul aircraft type from day one.

All of Australia's current international gateways were designed for a past era and have been refitted to incorporate new technologies and to meet our changing expectations of airport facilities.

Quieter, more fuel-efficient aircraft such as the Boeing 787 Dreamliner and Airbus's new A350 are opening up new routes for direct services rather than relying on the big hub airports.

We can expect the first year of a Western Sydney airport to be similar to the Gold Coast in passenger numbers, with capacity in stage 1 of up to 10 million passengers per annum. As airlines introduce new services, passenger numbers would grow, as would the terminal.

Once operational, the airport would support Western Sydney's economy by providing much needed employment opportunities, access to aviation services for a rapidly growing population, and by playing a part in expanding Sydney's future aviation capacity.

This project involves delivering Australia's largest greenfield airport project since the 1960s, so how is it being developed?

As a greenfield development, we have a necessary yet complex and long-term task.

We are working on an airport proposal that is commercially viable, meets the needs of Western Sydney and the nation, and can be adapted over time to meet ever-growing demand for domestic and international aviation services.

An important distinction to previous airports in Australia is that it will be developed with substantial private sector funding and financing.

This kind of approach will ensure the result is a commercially viable, robust proposal that delivers the best outcome for Western Sydney and the nation. In addition, creating an airport from a greenfield site ensures we can maximise the site to its full potential.

An important first step in delivering a Western Sydney airport involves consultation with the owners of Sydney Airport, who have the right of first refusal to develop and operate a second major airport for Sydney.

This was a condition of the sale of Sydney Airport in 2002. The right of first refusal process has two phases—consultation and contractual.

Formal consultations under the first phase commenced in October last year and are due to conclude this month.

Throughout the consultation process, the Government has remained open to sharing ideas. This means that the views of the Government and private sector can come together to achieve the best outcome.

Following the conclusion of this first phase, we will methodically work through the issues and review the range of options raised during the consultations.

As part of the next phase, we will develop a proposal that sets out the Government's terms, including technical specifications, contractual terms and a timetable.

I expect that work will take some months, but it is possible a formal proposal could be presented to Sydney Airport by as soon as the end of this year.

In tandem with that process, we have commenced a range of other project work, including detailed planning towards an operational airport, site investigations and an environmental assessment.

Ongoing geotechnical analysis is also being undertaken on the site to inform planning for early works. This geotechnical work is expected to conclude shortly.

The Environmental Impact Statement, or EIS, is a crucial component of project planning. It will specifically look at any environmental, social and economic impacts that construction and operation of the proposed airport might have. A draft EIS is expected to be available for community consultation later this year.

The EIS will examine potential impacts on air and water quality and the Greater Blue Mountains World Heritage area, the likely extent of native habitat removal and degradation, and recommended measures to minimise and manage potential environmental impacts.

The EIS will also include an archaeological survey programme which will engage with Indigenous community stakeholders. A statement of heritage impacts and the findings of the survey will be included in the environmental assessment.

The long-term planning restrictions around the Badgerys Creek site mean that it is, quite possibly, one of the best protected airport sites in the world.

In addition, we are working with a vast 1,700 hectare site that is the subject of robust and rigorous environmental assessment.

Combined, these factors give us the opportunity to plan an airport for Western Sydney that can be developed in such a way that it can grow over time to meet future demand.

There is no doubt a Western Sydney airport is one of the largest, most complex infrastructure projects this nation has seen in many years, and there is no doubt it will be a game changer for Western Sydney.

This sets a big challenge, but if we get it right it also represents an example of the sort of reforms we are seeking in Australian infrastructure: critical new investment for a growth region, improved long-term investment planning and coordinated land-use and transport investment, and joint public and private investment in critical long-term national infrastructure.

Thank you.