Introduction

1. In May 2005, the then Shadow Minister for Industry, Infrastructure and Industrial Relations announced the Australian Labor Party's (ALP) intention, if elected, to create a nationally led and coordinated authority, to be titled Infrastructure Australia, to work with the States and Territories to identify and achieve the most effective outcomes for nationally significant infrastructure.¹ Two years later, the ALP's 2007 National Platform and Constitution reiterated the ALP's intention to establish Infrastructure Australia as an independent statutory authority to assist in the planning and coordination of Australia's infrastructure needs.² Consequently, in the lead-up to the 2007 Federal Election, the ALP made a commitment to establish Infrastructure Australia within 100 days of being in government, if elected.³

2. Following the ALP's election to Government, the Infrastructure Australia Bill was introduced in the Parliament on 21 February 2008, passed both Houses of Parliament in March 2008, and the Act commenced on 9 April 2008. The Infrastructure Australia Act 2008 (the Infrastructure Australia Act) established Infrastructure Australia and set out Infrastructure Australia's functions. Infrastructure Australia's primary function under the Act is to provide advice to the Minister, all levels of government, and investors and owners of infrastructure on matters relating to infrastructure. Infrastructure Australia was also given a number of additional functions, including:

• conducting audits to determine the adequacy, capacity and condition of nationally significant infrastructure, taking into account forecast growth; and
• developing lists (to be known as Infrastructure Priority Lists) that prioritise Australia's infrastructure needs.

Governance arrangements

3. Under the Infrastructure Australia Act, the Infrastructure Australia Council consists of a Chair and eleven other members. The Minister appoints the Chair and the other members of the Council by written instrument made under the Act.⁴ The Chair of the Infrastructure Australia Council, Sir Rod Eddington, was announced by the Minister for Infrastructure, Transport, Regional Development and Local Government on 26 February 2008.⁵ The other eleven members of the Council were announced on 19 May 2008.⁶ The Infrastructure Australia Council has the statutory role of providing advice to the Minister for Infrastructure, Transport, Regional Development and Local Government (the Minister) on infrastructure matters, including the development of priority lists.

4. The Infrastructure Coordinator (a statutory office holder also appointed by the Minister under the Act) supports the Council in the performance of its functions. The Infrastructure Coordinator is appointed by the Minister on a full-time basis for a period not exceeding five years. The appointment of the inaugural Infrastructure Coordinator, Mr Michael Deegan, was announced on 22 June 2008, with his role formally commencing on 1 July 2008.⁷

5. The Office of the Infrastructure Coordinator supports the Infrastructure Coordinator.⁸ As well as a small number of permanent staff members (16 as at October 2009, including four staff in the Major Cities Unit) and secondees from State and Territory governments, a range of external advisors are engaged as required.

6. Infrastructure Australia is a departmental body recognised in legislation and is neither a prescribed agency under the Financial Management and Accountability Act 1997 nor a statutory authority under the Commonwealth Authorities and Companies Act 1997. Accordingly, the Office of the Infrastructure Coordinator operates within the legal framework of the Department of Infrastructure, Transport, Regional Development and Local Government (DITRDLG). Specifically:

• staff are engaged under the Public Service Act 1999, and are employees of DITRDLG; and
• financial reporting is consolidated within the annual financial statements of DITRDLG.

7. The May 2008 Budget included $20 million over four years to fund the Office of the Infrastructure Coordinator, with $0.5 million for 2007–08 and $6.5 million in each of the remaining three years. A further $1.0 million per annum was provided for the Major Cities Unit, located within the Office of the Infrastructure Coordinator.⁹ In announcing the Infrastructure Australia funding, the Budget Papers stated that:

The Government will provide $20.0 million over four years to establish Infrastructure Australia, a statutory advisory council with twelve members drawn from industry and government, to work on developing long term solutions for infrastructure bottlenecks and investment in the nation's transport, water, energy and communication assets.

Infrastructure Australia will conduct audits of nationally significant infrastructure; develop an Infrastructure Priority List to guide public and private investment; and provide advice on regulatory reforms that can improve the utilisation of infrastructure networks. In developing the Infrastructure Priority List, Infrastructure Australia will assess projects in terms of specific goals, such as, meeting water and energy needs; traffic congestion in our major cities; efficiently moving freight from regional areas to our ports; and meeting the challenge of climate change.¹⁰

8. The May 2008 Budget Papers also included a statement focussing on the scope for improved policy and institutional frameworks for infrastructure investment, and investment in skills and training, as these were seen as areas where there was significant scope to lift Australia's productive capacity. Of direct relevance to the work of Infrastructure Australia, in this statement, the Government:¹¹

• recognised that, where governments invest in infrastructure assets, it is essential that they seek to achieve maximum economic and social benefits, determined through rigorous cost-benefit analysis including evaluation and review;
• stated that only public infrastructure projects which at least meet a minimum benchmark social rate of return—determined through rigorous cost-benefit analysis, including evaluation and review—should be funded, and relative social rates of return above the minimum benchmark should be used to prioritise the funding of projects;
• committed to efficient public infrastructure investment through the development of coordinated, objective and transparent processes for decision-making based on thorough and rigorous cost-benefit analysis. Key elements of such an approach were seen as including decision-making based on rigorous cost-benefit analysis to ensure the highest economic and social benefits to the nation over the long-term and a commitment to transparency at all stages of the decision-making process; and
• outlined that Infrastructure Australia had been established to improve processes around the assessment of infrastructure investment decisions. Specifically, the Budget Papers stated that:

To improve processes around the assessment of infrastructure investment decisions, the Australian Government established Infrastructure Australia to advise governments on nationally significant infrastructure. Infrastructure Australia's advice will be based on rigorous analysis of the costs and benefits of various infrastructure proposals. Infrastructure Australia will identify strategic investment priorities and policy and regulatory reforms to facilitate timely and coordinated delivery of infrastructure investments of national importance between all levels of government and industry. Infrastructure Australia's immediate priority is to complete a National Infrastructure Audit by the end of 2008, and develop an Infrastructure Priority List for COAG consideration in March 2009. It is also to develop best practice guidelines for Public Private Partnerships for COAG consideration by October 2008.¹²

9. Decisions about whether to invest in projects are taken by governments and industry, having regard to the advice of Infrastructure Australia, amongst others.

Conduct of the First National Infrastructure Audit and Development of the First Infrastructure Priority List

10. The first Infrastructure Priority List was originally to be completed by March 2009, for consideration by the Council of Australian Governments (COAG).¹³ It had been envisaged that development of the Priority List would be informed by the outcomes of the first National Infrastructure Audit, due to be completed by December 2008. However, following the onset of the global financial crisis, COAG brought the timeframe for completion of the first Priority List forward to December 2008, to be due at the same time as the completion of the first Audit.¹⁴ In bringing forward the due date for the first Priority List, COAG noted that the Audit and Priority List were to be provided in the form of an ‘interim' report. The original COAG deadline of March 2009 was retained for the completion of a ‘final' Priority List.

11. The truncation of an already tight timetable added to the challenges faced by Infrastructure Australia in conducting the first National Infrastructure Audit and in developing the first Infrastructure Priority List. In particular:

• this was the first time a non-sector specific list of priority infrastructure projects was to be prepared at the Commonwealth level such that the List published in December 2008 included infrastructure projects in the transport, energy, telecommunications, water and health sectors; and
• the Office of the Infrastructure Coordinator was required to develop and implement its own administrative arrangements and make the necessary staff and advisory appointments for its operations concurrently with conducting the National Infrastructure Audit, developing the Priority List and preparing and publishing national Public Private Partnership Guidelines.

12. The COAG deadline of December 2008 was met, with advice on the Audit results and a draft Interim Priority List being provided to the Minister on 5 December 2008. The Audit results and an Interim Priority List of 94 projects were publicly released on 19 December 2008 in a report titled A Report to the Council of Australian Governments. In respect to the Interim Priority List of 94 projects, the report stated that:

In order to finalise the Infrastructure Priority List, Infrastructure Australia proposes to:

• subject the data underpinning the assessment of strategic fit to further detailed scrutiny;
• request the development of comprehensive economic analysis of selected projects, where only a rapid economic analysis is available at this stage;
• ask submitting organisations to provide comprehensive economic analysis of specified projects immediately, if currently available;
• request and scrutinise the detailed demand modelling underpinning the projects; and
• subject the economic modelling methodology to further scrutiny.¹⁵

13. A Final Priority List was released by the Minister on Tuesday 12 May 2009¹⁶ within a document titled National Infrastructure Priorities: Infrastructure for an economically, socially and environmentally sustainable future. Specifically the document stated that:

• nine ‘priority' projects had been identified and should be considered for funding from the Building Australia Fund (together with a tenth project, being the Ipswich Motorway); and
• 28 ‘pipeline' projects were considered to show potential but further project development and analysis was required before Infrastructure Australia considered it would be able to make a funding recommendation to the Australian Government.

14. A key aspect of the Infrastructure Australia analytical framework for the Infrastructure Priority List was the development of a staged assessment process to prioritise between investment proposals, drawing from international and nationally-based practices and research. Of note was that the published methodology outlined that objective cost-benefit analysis (through Benefit-Cost Ratios or BCRs) would be used as the ‘primary driver' of decision-making but they were not the only consideration. Consistent with the published methodology, a structured approach was planned by the Office of the Infrastructure Coordinator to combine the economic appraisal of a project's BCR with its assessment of each candidate project's ‘strategic fit' in order to identify those projects worthy of further consideration (at the Interim Priority List stage) and, subsequently, to be included on the Final Priority List.

15. Figure S 1 summarises the key points in the development of the Final Priority List. Figure S 1 also outlines how the Final Priority List has played an important role in Government funding decisions with seven of the nine priority projects having been announced for funding and 10 of the 28 pipeline projects similarly having been announced for funding.

Figure S 1 Key points in the development of the Infrastructure Priority List

Source: ANAO analysis of records of the Office of the Infrastructure Coordinator. 

Audit objectives and scope

16. In November 2008, the Infrastructure Coordinator wrote to the Auditor-General inviting an independent assessment of the integrity and robustness of the processes that had been adopted in:

• undertaking the first National Infrastructure Audit; and
• developing the first Infrastructure Priority List.

17. The Auditor-General agreed to this request as it was consistent with the published audit strategy for the Infrastructure, Transport, Regional Development and Local Government portfolio. The objective for the Australian National Audit Office (ANAO) performance audit was to assess the effectiveness of the conduct of the first National Infrastructure Audit and development of the Infrastructure Priority List, with particular emphasis on:

• the submissions process and the methodology used to assess submissions;
• the overall conduct of the Audit process;
• the formulation of the Interim and Final Infrastructure Priority Lists; and
• the provision of advice and recommendations to the Government.

18. Audit work originally commenced in March 2009 but was put on hold in late June 2009 in order to respond to a request from the then Prime Minister for a performance audit of a range of matters relating to representations to the Treasury regarding automotive finance arrangements for car dealers. Audit work re-commenced in August 2009.

Overall conclusion

19. Infrastructure Australia was established to improve the quality of infrastructure planning and investment strategy, and to identify those investments expected to make the biggest impact on Australia's economic, social and environmental goals for least cost to the taxpayer. Accordingly, it is a goal of Infrastructure Australia that infrastructure funding decisions will be taken following careful planning and rigorous assessments that are based on sufficient evidence.

20. Consistent with sound practice, Infrastructure Australia published guidance on its audit framework and on its prioritisation methodology, although the prioritisation methodology was released relatively late in the submissions process due to a range of demands on the Office at the time.

21. The published National Infrastructure Audit framework was sound. In conducting the Audit, the Office of the Infrastructure Coordinator relied on a range of material, although the short time available to conduct the Audit meant that most reliance was placed on submissions received from the States and Territories. The Audit identified a range of ‘challenges' at the national and location specific levels and Infrastructure Australia formulated seven themes in response to these challenges.

22. Infrastructure Australia's methodology provided a robust framework for the development of the Interim and Final Infrastructure Priority Lists. This was reinforced by the Office of the Infrastructure Coordinator taking a rigorous approach to assessing candidate projects including by: scrutinising the claims made by proponents in their submissions; seeking further information where it was needed; and engaging advisers to assist it in deciding whether the BCR submitted by the proponent could be relied upon, or required moderation.¹⁷

23. The Interim Priority List, published in December 2008, comprised 94 projects. During November 2008, these 94 projects had been evaluated by the Office of the Infrastructure Coordinator, with 28 projects being recommended by the Office of the Infrastructure Coordinator as meriting further consideration. Consistent with its statutory role, the Council (with the support of the Infrastructure Coordinator) took a different perspective, and included all 94 shortlisted projects on the Interim Priority List. This decision, and its reasons, were not documented in the records of the relevant Council meeting. In June 2010, the Chair of the Infrastructure Australia Council informed ANAO that the Council and the Infrastructure Coordinator had agreed that further information should be requested from all 94 projects to allow for:

• additional evidence to come forward before the original deadline for the completion of the Final Priority List; and
• the Office of the Infrastructure Coordinator's assessment to be updated given the initial assessment by the Office of the Infrastructure Coordinator reflected the available information and time available for assessment.

24. Further information was provided in respect to some projects, and some project assessments were updated but, in the main, the December 2008 request to proponents of all 94 projects on the Interim Priority List that they provide further information was unsuccessful in significantly improving the information available to inform the development of the Final Priority List.

25. The Infrastructure Australia Council gave the Office of the Infrastructure Coordinator guidance on its overall approach and tested the Office of the Infrastructure Coordinator's conclusions in relation to specific projects. The Council also asked for further information on some projects, particularly those the Council considered to be of demonstrable national importance or projects seen to have particular sensitivities. The Chair of the Council informed ANAO that this iterative process was intended to ensure that the Council's understanding of the projects was complete, as well as to enable the Council to refine its understanding and assessment of the proposals that had been submitted for its consideration. The Final Priority List was published in May 2009. It comprised:

• nine ‘priority' projects¹⁸ that had been assessed as meeting the tests outlined in the published Prioritisation Methodology, including having a BCR greater than 1 such that the project offered net economic benefits; and
• 28 ‘pipeline' projects,¹⁹ largely comprising projects which either had not submitted a BCR for the Office of the Infrastructure Coordinator's evaluation, or where the Office of the Infrastructure Coordinator's evaluation had identified shortcomings in the BCR.

26. When published, the Final Priority List outlined the criteria that had been applied in deciding upon both the priority projects and the pipeline projects. The criteria applied to identifying the nine priority projects were consistent with those outlined in the published Prioritisation Methodology, and the Office of the Infrastructure Coordinator's analysis was that these criteria had been met by each of the nine priority projects.

27. Whilst the nine priority projects had demonstrably satisfied the tests set out in the published Prioritisation Methodology, this was not the case for the 28 pipeline projects. In particular, whilst the published Prioritisation Methodology had outlined a range of factors that would be taken into account, it stated that BCRs would be used as the ‘primary driver' of decision-making and 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. Further, there was no clear record maintained of the reasons for the Council deciding which projects were to be included on the Final Priority List, and those projects that were to be excluded.

28. Infrastructure Australia's May 2009 document incorporating the Final Priority List stated that the 28 pipeline projects had not yet demonstrated their economic viability (through the economic appraisal process including having a BCR above 1) nor had they demonstrated robust delivery mechanisms that would ensure they could be successfully implemented. Accordingly, the May 2009 document advised that further project development and analysis was required before Infrastructure Australia could provide definitive funding assessment advice to the Government.

29. Once it has published its Priority List identifying projects that merit being considered for funding and those that are worthy of further development and analysis, Infrastructure Australia does not have a role to play in allocating funding for infrastructure projects. Rather, decisions about which projects were to receive Commonwealth funding were made by the Government in the context of economic stimulus spending (two pipeline projects) as well as subsequently in the Budget context. In this latter respect, funding for seven (of the nine) priority projects and six pipeline projects was announced in the May 2009 Budget, with funding for a further two pipeline projects announced in the May 2010 Budget.²⁰

30. The Infrastructure Australia Council is responsible for developing Lists that prioritise Australia's infrastructure needs and, in discharging this role, has the capacity to look beyond the initial information submitted to it by project proponents and assessments prepared for it by the Office of the Infrastructure Coordinator. The Council adopted such an approach in the development of its first Infrastructure Priority List on a consensus basis.

31. A clear strength in the processes employed in developing the first Infrastructure Priority List was the rigorous approach adopted to analysing proponent submissions against the published criteria. The published criteria themselves set a high standard, with a strong focus on the economic appraisal of candidate projects. However, whilst all shortlisted projects were considered against the same criteria, the pipeline projects did not pass the tests set out in the published Prioritisation Methodology. The criteria applied to distinguish between priority and pipeline projects were outlined in the May 2009 Final Priority List but they were not reflected in the Prioritisation Methodology published in September 2008, and have not been reflected in the guidelines for making submissions to Infrastructure Australia's infrastructure planning process published in October 2009.

32. Recognising the value to long term infrastructure planning from the development and ongoing update of a pipeline of nationally significant projects, there would be benefit in Infrastructure Australia setting out its methodology more clearly to inform project proponents and other stakeholders of its approach. In addition, there would be benefit in better records being made of the reasons for Council decisions on the composition of project Priority Lists given the significance of the advice being provided and Infrastructure Australia's goal of promoting evidence-based public investment decisions.²¹

33. Inevitably, there will be experience gained by any new organisation with such a critical role that will result in some modifications or streamlining of approaches. To build on the solid methodological base that Infrastructure Australia has developed, ANAO made three audit recommendations designed to provide greater transparency in the project prioritisation process and enhance the reporting of the prioritisation results.

Key findings by Chapter

The National Infrastructure Audit (Chapter 2)

34. In March 2008, COAG agreed to its Infrastructure Working Group's recommendation that the National Infrastructure Audit be one of the immediate priorities for Infrastructure Australia, the others being the development of an Infrastructure Priority List and development of National Public Private Partnership Guidelines. The Audit was to be completed by December 2008, some eight months after Infrastructure Australia was established by legislation and five months after the Infrastructure Coordinator was formally appointed. The timeframe was met, with the results of the Audit being published in December 2008 (together with the Interim Priority List).

35. The conduct of the National Infrastructure Audit was complicated by the first request for submissions being made prior to Infrastructure Australia developing its Audit methodology. This situation, and the significant variability in the quality and extent of the submissions received, necessitated a further request for submissions.

36. In formulating the December 2008 Report, Infrastructure Australia relied on a range of material. This included:

• submissions made by various organisations as part of the public submissions process;
• existing studies and reports from Commonwealth bodies, such as the Productivity Commission; and
• Commonwealth and State Government submissions made to Infrastructure Australia throughout 2008.

37. The National Infrastructure Audit revealed considerable gaps in the national systems for collecting, holding and analysing the data used to inform infrastructure investment decisions. The submission process attempted to address some of these gaps, but this was not successful.

38. The first objective of the National Infrastructure Audit was to determine the adequacy, capacity and condition of nationally significant infrastructure, taking into account forecast growth. The second objective was to identify gaps, deficiencies, impediments and bottlenecks in the identified sectors as measured against expected future demand. However, neither of these objectives were explicitly addressed in the reported outcomes of the Audit. Instead, the Report identified a range of ‘challenges' at a national and location-specific level and Infrastructure Australia's proposed response to these challenges. Separately, Infrastructure Australia is developing infrastructure strategies in areas such as freight and ports, water, energy and public transport in response to issues raised in relation to the second objective above. In April 2010 the Office of the Infrastructure Coordinator advised ANAO that its view was that, given the data limitations and the available timeframe, the intent of COAG's terms of reference had been satisfied.²²

Administrative processes for the development of the Priority Lists (Chapter 3)

39. As previously indicated, the Priority List was developed through a submissions-based process, with 675 project submissions received. There were some administrative issues in the way in which submissions were registered and controlled within the Office of the Infrastructure Coordinator, as well as in relation to the maintenance of records of correspondence and discussions with proponents. A key factor in these circumstances was that the Office of the Infrastructure Coordinator was developing and implementing administrative processes at the same time as commencing its substantive work on the National Infrastructure Audit, the development of the Infrastructure Priority List and production of Public Private Partnership guidelines, each of which had tight timeframes. The Office of the Infrastructure Coordinator has advised ANAO of a range of improvements that have now been adopted with respect to its administrative processes.

40. Infrastructure Australia's assessment framework, which was not a tender process, drew from international and national-based practices and research, and was published in the form of a document called the Prioritisation Methodology. The Prioritisation Methodology was endorsed by the Infrastructure Australia Council at its meeting on 1 October 2008.

41. Amongst other sources, Infrastructure Australia's approach drew on the National Guidelines for Transport System Management (National Guidelines) which were endorsed by the Australian Transport Council in November 2004, and updated in December 2006. As outlined in ANAO Audit Report No. 29 2008–09, Delivery of Projects on the AusLink National Network, the National Guidelines advocate that all proposed projects should be subject to the same appraisal process and that appraised proposals should be prioritised to develop a forward program of preferred initiatives through a transparent process that is founded on sound economic and business investment principles.²³ The framework set out in the National Guidelines uses a three-stage appraisal process, illustrated in Figure S 2. The intention is that the projects that pass through all filters, demonstrate strategic merit and fit, and perform well in a detailed appraisal, which is to be a:

comprehensive analysis of the impacts and merit of an initiative. A detailed appraisal usually involves detailed Benefit-Cost Analysis, a financial or budget assessment, and specific impact analyses and impact statements (for example, environmental, social, regional, employment, equity). All relevant monetised and non-monetised impacts need to be assessed.²⁴

Figure S 2 Three-stage appraisal process for infrastructure projects

Source: Australian Transport Council, National Guidelines for Transport System Management in Australia, Volume 2—Strategic transport planning and development, December 2006, p. 54.

42. The application of the Prioritisation Methodology involved self-assessment by proponents, with the Office of the Infrastructure Coordinator scrutinising the claims made by proponents in their submissions. In this respect, the published Prioritisation Methodology document contained three proformas to assist project proponents in providing information to Infrastructure Australia. The Prioritisation Methodology also outlined that there were three phases to Infrastructure Australia's process:

• profiling, being an analysis of the project's ‘strategic fit'—how well the project would meet Infrastructure Australia's strategic priorities²⁵ ;
• economic appraisal, which combined monetised cost-benefit analysis of candidate projects (measured principally through a project's Benefit-Cost Ratio, or BCR). The purpose of the economic appraisal assessment phase was to critique the BCRs submitted with candidate initiatives so as to identify whether the proponent's economic analysis could be relied upon in developing the Interim Priority List; and
• selection, in which the outputs of the preceding profiling and appraisal phases were to be used to create a priority list of initiatives to enable informed decision-making for the allocation of funding.

43. Infrastructure Australia's published Prioritisation Methodology had regard to the practical circumstances faced in the context of developing the first Infrastructure Priority List. In particular, it allowed for project proposals to be at different stages of development. Nevertheless, the Prioritisation Methodology required that robust information (including economic analysis) appropriate to the development maturity of the project be submitted for the Office of the Infrastructure Coordinator's analysis. This was consistent with the Government's stated intention (see paragraph 8) that Infrastructure Australia's advice be based on rigorous analysis of the costs and benefits of various infrastructure proposals.

The Interim Priority List (Chapter 4)

44. From the 675 submissions that had been received, the Council decided to shortlist 94 projects for detailed evaluation by the Office of the Infrastructure Coordinator, in order to develop the Interim Priority List. This approach was consistent with the approach proposed by the Office of the Infrastructure Coordinator and the Infrastructure Coordinator.

45. The Office of the Infrastructure Coordinator developed an evaluation plan to assist it in undertaking the detailed assessment of the 94 shortlisted projects. The evaluation plan was consistent with the Prioritisation Methodology previously endorsed by the Council that had been published on the Infrastructure Australia website.

46. The evaluation was undertaken by the Office of the Infrastructure Coordinator in accordance with the evaluation plan. The rigour of the evaluation process was further aided by the Office of the Infrastructure Coordinator engaging (from a panel established by DITRDLG) external advisers to assist in evaluating the BCRs submitted by proponents. The approach adopted was robust and comprehensive.

47. The published Prioritisation Methodology outlined that the outputs of the preceding profiling and appraisal phases were to be used to create a priority list of initiatives to enable informed decision-making for the allocation of funding. This approach was implemented, with the Office of the Infrastructure Coordinator concluding that, of the 94 shortlisted projects:

• 57 projects either had a BCR that was below the evaluation threshold of 1.5²⁶ or a profiling assessment had not been able to be completed;
• nine projects did not have a good fit with the strategic priorities or would not deliver significant economic benefits and therefore should not be further considered as candidates for the Interim Priority List; and
• 28 projects merited being considered by the Council for inclusion on the Interim Priority List (referred to as projects on the merit matrix²⁷).

48. A report on the results of the evaluation was provided to the Infrastructure Coordinator by a Prioritisation Evaluation Committee comprising senior staff of the Office of the Infrastructure Coordinator. These recommendations were presented to the Council at its meeting on 1 December 2008.

49. On 5 December 2008, the Chair of the Infrastructure Australia Council wrote to the Minister for Infrastructure, Transport, Regional Development and Local Government providing him with the results of the National Infrastructure Audit and also outlining the proposed approach to finalising the Interim Priority List. The Minister was provided with the list of 94 projects that had been evaluated and advised that:

• there were six ‘priority projects' that addressed one or more of the seven themes and where the project's initial economic appraisal and alignment with key strategic priorities was considered to be well documented. The Minister was further advised that, subject to further engagement with project proponents the expectation was that these projects could proceed to be recommended for funding, including from the Building Australia Fund; and
• there was a second group of 22 ‘potential projects' that included initiatives that also addressed one or more of the strategic themes but that some aspect of a project's economic benefits or alignment with strategic priorities remained sufficiently in question such that they could not, at that time, be recommended for immediate funding.

50. The Council next met on 12 December 2008. At this meeting, the Council requested that the Office of the Infrastructure Coordinator seek additional information for all 94 projects that were able to be evaluated, and not just for those 28 that had been recommended by the Office of the Infrastructure Coordinator as meriting further consideration. As a result of this decision, the Interim Priority List publicly released on 19 December 2008 (within the document titled A Report to the Council of Australian Governments) was the list of 94 projects shortlisted for detailed appraisal. Neither the Council's decision not to accept the recommendation that 28 projects be included on the Interim Priority List but to instead include all 94 shortlisted projects, nor the reasons for the decision, were reflected in the Minutes of the relevant Council meeting or later meetings.

51. 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.²⁸ However, as indicated, there were 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. Accordingly, an adequate economic appraisal was not applied as an eligibility criterion for inclusion on the Interim Priority List, notwithstanding that the published Prioritisation Methodology had stated that cost-benefit analysis would be used as the ‘primary driver of decision-making'. In this context, in June 2010, the Chair of the Council informed ANAO that the Council believes it should have some discretion in selecting projects that should be given the opportunity to show their merit over time. The Chair further informed ANAO that the Council considered the Interim Priority List to be an interim assessment of likely projects to help guide further analysis, but not on an exclusive basis.

The Final Priority List (Chapter 5)

52. Neither the Interim Priority List nor any of the associated material promulgated by Infrastructure Australia flagged that there would be opportunities to submit new candidates for inclusion in the Final Priority List. Indeed, the December 2008 report that incorporated the Interim Priority List had advised that those projects that had not been included on the Interim Priority List would be considered ‘on their merits in future assessment processes'.²⁹ Whilst no further public submissions were received, four projects from different State and Territory governments were received and considered.³⁰ One of these was included in the table of Infrastructure Priorities published in the report outlining the Final Priority List.³¹

53. The overall evaluation framework envisaged by the Office of the Infrastructure Coordinator for developing recommendations on the Final Priority List was consistent with the published Prioritisation Methodology applied in developing the Office of the Infrastructure Coordinator's recommendations in relation to the Interim Priority List. Similar administrative arrangements were also proposed and the Office of the Infrastructure Coordinator commenced updating the evaluation plan that had been approved for the development of the Interim Priority List.

54. However, a substantially different approach was ultimately taken to the development of the Final Priority List. The Prioritisation Evaluation Committee within the Office of the Infrastructure Coordinator again had a central role in advising the Infrastructure Coordinator and, in turn, the Council on the composition of the Final Priority List. However, rather than the Prioritisation Evaluation Committee developing recommendations for the Infrastructure Coordinator to then take to the Council, the Council took a leading role in guiding the evaluation process, and there was significant engagement by the Infrastructure Coordinator and his Office with proponents for certain projects that the Council expressed particular interest in.

55. Under the approach taken to developing the Final Priority List, rather than an evaluation report being prepared by the Office of the Infrastructure Coordinator that documented how the evaluation was conducted and the results, the primary records of the development of the List were the papers submitted to the Council meetings and the meeting Minutes.³² The key meetings in this regard were held on 30 January 2009, 27 February 2009 and 27 March 2009. However, Council meeting Minutes often did not record when it was decided to include projects on the Final Priority List or why. Rather, the best record of the evolving Final Priority List was the various drafts of the List circulated to Council members prior to and following the meetings.

56. On 27 March 2009, following a meeting of the Infrastructure Australia Council, the Infrastructure Coordinator (under delegation from the Council) provided the Minister with a Final Priority List comprising nine priority projects and 27 pipeline projects. This timeframe was consistent with the COAG request that the Final Priority List be provided by March 2009. However, the List was not published at that time.

57. On 7 May 2009, an updated Final Priority List, together with an outline of the process adopted and details of further work that had been done, was provided to the Minister by the Chairman of the Infrastructure Australia Council. It now included an additional pipeline project.³³ The Final Priority List (of nine priority projects and 28 pipeline projects) was published on Tuesday 12 May 2009. Each of the nine priority projects and the 28 pipeline projects had been assessed as fitting one of Infrastructure Australia's seven themes for action. In addition, whilst most of the proposals submitted to Infrastructure Australia were considered by the Council to have been focused on infrastructure issues within a particular jurisdiction (State, Territory or regional/local government area) rather than being national in their scope, the final conclusion reached by the Council was that each of the priority and pipeline projects was of national significance. In reaching this conclusion, the Council recognised that specific projects in a particular locality can assist in pursuing various national priorities.

Priority projects

58. The Final Priority List included nine projects that had been assessed as being consistent with Infrastructure Australia's seven themes; would contribute to Infrastructure Australia's strategic policy goals; and had demonstrated long-term economic benefits (through their BCR) (see Table S 1). The Office of the Infrastructure Coordinator had concluded that each of these projects was likely to have a BCR greater than 1, such that the project offered net economic benefits. Seven of the nine priority projects were announced in the May 2009 Budget to receive full or partial funding (see Table S 1). The May 2010 Budget did not include any funding for the remaining two priority projects.

Table S 1 Final Priority List Priority Projects

Source: Infrastructure Australia, National Infrastructure Priorities, May 2009 and Commonwealth Budget Papers 2009–10.

Pipeline projects

59. The concept of a project pipeline had been contemplated by the Office of the Infrastructure Coordinator in the approach it had taken to preparing recommendations on the Interim Priority List. In particular, the Office of the Infrastructure Coordinator had identified both priority projects and those with potential for the Interim Priority List. For the purposes of the Interim Priority List, to be recommended by the Office of the Infrastructure Coordinator for inclusion as a pipeline project with potential:

• the project submission was required to be supported by sufficient information for the Office of the Infrastructure Coordinator to scrutinise the profiling for the project, with the Office of the Infrastructure Coordinator's assessment then concluding that the project was, as a minimum, a good strategic fit; and
• there needed to be indications that the BCR for the project was likely to be at least 1.5, but sufficient information had not yet been provided to support the proponent's economic appraisal.

60. However, the pipeline projects included in the Final Priority List reflected less stringent criteria (see Table S2). Whilst a small number of the 28 pipeline projects³⁴ had not been assessed as demonstrating a fit with Infrastructure Australia's strategic priorities, the most significant difference between the priority projects and those included on the pipeline in the Final Interim List related to their economic appraisal. In particular:

• 13 of the pipeline projects did not have a BCR, whereas all priority projects had a BCR of 1.3 or higher³⁵; and
• for the remaining 15 pipeline projects that had a BCR associated with them, the Office of the Infrastructure Coordinator's assessment had been that there was insufficient evidence to support the economic viability of the project. In some instances, this was because the BCRs were assessed as out of date by the Office of the Infrastructure Coordinator. In other instances, the economic analysis was assessed as preliminary or inadequate.

Table S 2 Criteria for including projects on the Final Priority List

Source: ANAO analysis and advice from the Office of the Infrastructure Coordinator.

61. Infrastructure Australia's May 2009 document incorporating the Final Priority List stated that the pipeline projects had not yet demonstrated their economic viability (through the economic appraisal process including having a BCR above 1) nor had they demonstrated robust delivery mechanisms that would ensure they could be successfully implemented. Accordingly, the May 2009 document advised that further project development and analysis was required before Infrastructure Australia could provide definitive funding assessment advice to the Government. Infrastructure Australia reported that this was because:

• there was insufficient information to make a robust assessment at this stage, and/or
• the quality of analysis was not robust enough to form a solid basis for judgement, and/or
• there was a timing issue.³⁶

62. The further project development and analysis was to occur as part of Infrastructure Australia updating the Final Priority List, expected to be issued on 30 June 2010. However, by May 2010, before Infrastructure Australia had come to any conclusions about whether funding should be recommended in respect to the 28 pipeline projects, the Government had announced funding for 10 of the pipeline projects (see also Figure S1). Specifically:

• prior to the Final Priority List being published, the Government had committed funding in relation to two of the pipeline projects;
• a further six pipeline projects were announced in the May 2009 Budget to receive funding; and
• another two pipeline projects were announced in the May 2010 Budget to receive funding.

63. In this context, the experience with the NSW Government's West Metro project highlights the increased risks that are involved in funding projects that have not yet demonstrated their economic viability. The May 2009 Budget had included $91 million towards engineering and design work to further develop the West Metro project. Together with the CBD Metro project, the West Metro project had been included as a pipeline project in the Final Priority List notwithstanding that the Office of the Infrastructure Coordinator's final assessment was there were ‘substantial questions' about the economic viability of both projects, given that neither had a claimed BCR above 1.0.³⁷ In February 2010 the New South Wales Government announced that construction would not proceed in respect to either the CBD Metro or West Metro projects.

Summary of agency response

64. A copy of the proposed report was provided to the Infrastructure Coordinator, the Infrastructure Australia Council and DITRDLG. Infrastructure Australia provided formal comments on the audit report, as follows:

The Infrastructure Australia Council has welcomed the involvement and continuing relationship with your office.

Infrastructure Australia supports the thrust of the recommendations made by the Auditor-General. With regards to recommendation 3(b), while we agree that making the case for public funding and its exact form is important, the split between jurisdictions will be influenced by a wide variety of factors. Funding is obviously a matter for the Government to decide taking into account these factors in considering competing budget priorities.

Footnotes

¹ Stephen Smith (then Shadow Minister for Industry, Infrastructure and Industrial Relations), Announcement of Infrastructure Australia, Media Release, 12 May 2005.

² Australian Labor Party, National Platform and Constitution 2007, April 2007, p. 72. This followed the release of the Report of the Australian Labor Party Inquiry into the Financing and Provision of Australian Infrastructure, April 2007, which also recommended the establishment of a national infrastructure advisory council.

³ Minister for Infrastructure, Transport, Regional Development and Local Government, Infrastructure Australia Bill 2008, Second Reading Speech, House of Representatives, 21 February 2008.

⁴ The Act sets out a number of requirements in relation to the composition, background and skills of Council Members that the Minister must ensure are satisfied in making appointments to the Council.

⁵ The Hon Anthony Albanese MP (Minister for Infrastructure, Transport, Regional Development and Local Government), Sir Rod Eddington appointed to head Infrastructure Australia, Media Release, 26 February 2008.

⁶ The Hon Anthony Albanese MP (Minister for Infrastructure, Transport, Regional Development and Local Government), Membership of Infrastructure Australia, Media Release, 19 May 2008.

⁷ The Hon Anthony Albanese MP (Minister for Infrastructure, Transport, Regional Development and Local Government), Appointment of Infrastructure Coordinator, Media Release, 22 June 2008.

⁸ For the purposes of this audit report, the term ‘Infrastructure Australia' is used to refer jointly to the Infrastructure Australia Council, the Infrastructure Coordinator and the Office of the Infrastructure Coordinator. Otherwise, the report explicitly refers to the relevant party.

⁹ The $6.5 million budget allocated to the Office of the Infrastructure Coordinator is required to meet any budget deficits of the Major Cities Unit. Departmental outputs are appropriated as a single amount for each entity, such that the $7.5 million per annum annual funding for the Office of the Infrastructure Coordinator (including the Major Cities Unit) is able to be used to fund any departmental expenditure in the Department of Infrastructure, Transport, Regional Development and Local Government. In this context, corporate overheads for 2009–10 are expected to be some $1.876 million.

¹⁰ Budget Paper No. 2 2008–09, Budget Measures, circulated by The Honourable Wayne Swan MP, Treasurer of the Commonwealth of Australia and The Honourable Lindsay Tanner MP, Minister for Finance and Deregulation of the Commonwealth of Australia for the information of Honourable Members on the occasion of the Budget 2008–09, 13 May 2008, p. 266.

¹¹ Budget Paper No. 1 2008–09, Budget Strategy and Outlook, circulated by The Honourable Wayne Swan MP, Treasurer of the Commonwealth of Australia and The Honourable Lindsay Tanner MP, Minister for Finance and Deregulation of the Commonwealth of Australia for the information of Honourable Members on the occasion of the Budget 2008–09, 13 May 2008, pp. 4–6, 4–13 and 4–15.

¹² Budget Paper No. 1 2008–09, Budget Strategy and Outlook, circulated by The Honourable Wayne Swan MP, Treasurer of the Commonwealth of Australia and The Honourable Lindsay Tanner MP, Minister for Finance and Deregulation of the Commonwealth of Australia for the information of Honourable Members on the occasion of the Budget 2008–09, 13 May 2008, p. 4–13.

¹³ COAG Meeting Communique, 26 March 2008.
¹⁴COAG Meeting Communique, 2 October 2008.

¹⁵ Infrastructure Australia, A Report to the Council of Australian Governments, December 2008, p. 72.

¹⁶ The Hon Anthony Albanese MP (Minister for Infrastructure, Transport, Regional Development and Local Government), Investing in the Nation's Infrastructure Priorities, Media Release, 12 May 2009.

¹⁷ In particular, the analysis examined the robustness of the demand forecasts, the robustness of the proponent's costing, key methodological questions and benchmarked the figures used by the proponent.

¹⁸ See Paragraph 13 for description of ‘priority' and ‘pipeline' projects.

¹⁹ These 28 projects are a different set of projects from the 28 projects recommended by the Office of the Infrastructure Coordinator referred to in paragraph 23, although there is some overlap with individual projects.

²⁰ See further at paragraphs 5.78 to 5.80 of the audit report in respect to the priority projects, paragraphs 5.83 to 5.84 of the audit report in respect to the pipeline projects and Infrastructure Australia's comments on Government funding at paragraph 5.89 of the audit report.

²¹ Under the legislative arrangements, the Council was empowered to decide which projects should be included on the Final Priority List; and there was no requirement for the Council to document the nature and extent of any inquiries undertaken, or to record the reasons for decisions taken.