Treasurer Curtis Pitt and the Palaszczuk Government have released the newly elected Labour Government’s first state budget for 2015-16.
The budget commits $10.1 billion toward essential infrastructure.
This is a relatively modest contribution, which commits to funding existing infrastructure projects and other infrastructure projects in the investment pipeline. The budget does not allocate any funds towards new infrastructure projects and demonstrates the fiscal constraints on the State’s budget.
The budget also sets out a procurement framework that aims to align with market practices. The framework provides exclusivity opportunities for those proponents that are able to deliver innovative proposals that depart from standard industry practice.
Where will the money be allocated?
It is proposed that the funds will be allocated as follows:
Roads & Transport
Energy and Water
Health & Community
Education & Training
The funds will be contributed towards major projects currently in the procurement process and major projects in the planning stages. The budget has outlined the following projects for funding:
Major projects in procurement
- Toowoomba Second Range Crossing
- Gateway Upgrade North
- Queen’s Wharf Brisbane
- Herston Quarter Redevelopment
Major projects in planning
- Townsville Stadium /
Eastern Access Rail Corridor
- Brisbane Inner City Rail
- Nullinga Dam
- Integrated Resort Developments
- Sunshine Coast Rail Upgrade
- Hann Highway Upgrade
- Train Control System Upgrade
- Gold Coast Light Rail Stage 2
How will the money be distributed?
The Palaszczuk Government proposes to implement this funding through the following strategy:
- Building Queensland - The Government will contribute $20.2 million to establish an independent statutory body, designed to deliver a whole- of-government perspective to infrastructure planning and investment. Building Queensland has been established as administrative body under the Department of Infrastructure, Local Government and Planning until such time that the Bill is passed. The Bill is expected
to be introduced to Parliament in late 2015. For more information on Building Queensland please see our previous alert here.
- Queensland Infrastructure Plan - Building Queensland will be given the task of developing a pipeline of priority infrastructure projects. This pipeline will be used to identify Queensland’s current and future infrastructure priorities and assist the ongoing development of the State Infrastructure Plan. The Department of Infrastructure, Local Government and Planning has been tasked with developing the State Infrastructure Plan. The State Infrastructure Plan is expected to be released by the Queensland Government in early 2016.
- PPPs - The Government states that it is committed to collaborating with the private sector to consider innovative ways of partnering. The new market led proposals guideline (Guideline) has been established following a recent review of the State’s Project Assessment Framework and seeks to provide industry with guidance on how the Queensland Government will assess proposals from industry.
- Schools and Hospitals Fund - The Government will establish a $500 million ‘Schools and Hospitals Fund’. The fund will focus on health refurbishment and education capital and maintenance projects throughout the State of Queensland.
Capital investment by sector
The majority of the capital investment will be committed to the continuation of existing and proposed infrastructure projects in the transport and energy sectors. The contributions are broken down as follows:
Transport Infrastructure - 43%
Energy Infrastructure - 25%
Health community and housing - 19%
Other - 13%
No new major infrastructure investments!
The Budget contains no new major capital investments in infrastructure. The capital allocation is limited to the continuation of funding of infrastructure across the following sectors:
The Department of Transport and Main Roads will be allocated $2.905 billion, to contribute toward the continuation of existing infrastructure projects. These include:
- $175.9 million to expand the Gateway Motorway North to six lanes between Nudgee and Bracken Ridge as part of a $1.162 billion project, jointly funded with the Commonwealth Government;
- $161 million to upgrade major Gold Coast roads in the lead-up to the
2018 Commonwealth Games;
- $172.1 million towards the 41 kilometre bypass route to the north of Toowoomba as part of a $1.606 billion project, jointly funded with the Commonwealth Government;
- $113.1 million to duplicate the Bruce Highway between Cooroy to Curra as part of a $490 million project, jointly funded with the Commonwealth Government; and
- $33.4 million to provide a new elevated crossing on the Bruce Highway across the Yeppen Floodplain as part of a $170 million project, jointly funded with the Commonwealth Government.
The State Government will also contribute $861.4 million to rail infrastructure in Queensland. $568.4 million of this will be allocated to Queensland Rail to fund the network infrastructure program to continue rail network improvements. A further $226.5 million is dedicated to continue new and existing upgrades to infrastructure. These initiatives include:
- $78.1 million for new generation rolling stock and to construct a new
maintenance facility for rail services in South East Queensland;
- $72.6 million to construct an additional track on the existing network
between Lawnton and Petrie Stations;
- $63.4 million to duplicate the Gold Coast line between Coomer and
- $55.7 million to commence work on the Toowoomba Range Capacity and Clearance Upgrades project; and
- $42.6 million to continue passenger safety and accessibility works, including station upgrade works at Nambour, Alderley, Newmarket, Dinmore, Graceville and detailed design for upgrades at Strathpine, Boondall and Auchenflower train stations.
The State Government has indicated that it is considering options to fund and finance Stage 2 of the Gold Coast Light Rail and an inner city rail line consistent with the previous Cross River Rail proposal.
The State government, through its State owned corporations, has allocated funding toward the continuation of the port infrastructure projects. Most notably:
- Far North Queensland Ports Corporation has allocated $7.2 million towards new and continual development within its ports in Far North Queensland;
- Gladstone Ports Corporation has allocated $98.1 million towards development at the Port of Gladstone, Port of Bundaberg and Port of Rockhampton;
- North Queensland Bulk Ports Corporation has allocated $13.7 million
for port planning and development; and
- Port of Townsville has allocated $29.8 million towards ongoing
development at the Port of Townsville and Port of Lucinda.
The State Government has allocated $2.4 billion for energy and water infrastructure. This is a $600 million reduction from the previous allocation of $3 billion in last year’s liberal budget.
The Queensland Government proposes to move debt from the State to the state owned utilities without relinquishing ownership of the utilities. We understand that this could increase the debt ratio of these utilities from
~55% to between 70% - 75%.
The State Government maintain that electricity prices will remain constant as electricity transmission and distribution pricing will continue to be independently regulated in Queensland by the Australian Energy Regulator. It will be worth watching whether the higher debt costs result in higher costs for consumers or whether the lower debt for the State will result in more favourable financing options for the utilities.
Market led proposals framework
The market led proposals framework provides an opportunity for industry to identify projects for assessment, and ultimately, development. In assessing market led proposals the Government will consider the community requirements and priorities. This will in part be established by the new Building Queensland. The Government will also consider the
benefit and risk of the proposal, the value for money, competing proposals and the feasibility of the project along with the capability of the proponent. Each assessment will be made on a case by case basis.
The framework recognises that in some instances the Government will benefit from dealing exclusively with a single proponent. Government may provide exclusivity to proponents where they can demonstrate that a
competitor will not be able to provide the same service (for example where the proponents owns the intellectual property related to the project) or where the proposal provides a unique departure from previous market practices.
It is anticipated that the process will be operated through a multi-layered assessment process. This includes informal proposal discussions between industry and the Government. Following this, proponents are invited to provide the Government with a high level outline of the proposal to enable a preliminary assessment and strategic assessment by the Government. Where the Government consider that the project is suitable to proceed,
a detailed proposal will be required to address the assessment criteria (identified above) and address any issues identified in the initial stages of the proposal. Finally, a final binding offer will be submitted by the proponent and the parties will enter into binding contracts.
All proposals will be established in a central portal and will be administered by Treasury. Treasury will support the Panel which will then make its recommendations to Government. The central online portal is expected be established by the Queensland Government shortly.
Baker & McKenzie is instructed by the State Government that the market led proposals framework demonstrate that ‘traditional PPPs are a thing of the past’ and that the ‘Government welcomes unsolicited bids’.
What does this mean?
The effects of the State budget are two-fold. Firstly the budget confirms that there is limited capital available for infrastructure. Secondly, it provides certainty of funding toward the current infrastructure projects in the investment pipeline.
The budget does, however, highlight that the Government will be looking for private capital by focussing the PPP framework on market led proposals to attract innovative and unique proposals. Exclusivity opportunities exist for those proponents that can develop innovative proposals that depart from market standard practice and offer a unique benefit to the State.
For more information on new opportunities under the market led proposal framework and other information on the budget and the effect on infrastructure please feel free to contact us on the details below.