Subject: The Federal Govt. will initially save >$3b annually by legislating to centralise responsibility to the Commonwealth Productivity Commission to audit a compliant Conforming Cost-Benefit Analysis for each future State or Territory infrastructure project with forecast Capex over $20m – The Productivity Commission offered to perform this vital role back in 2009 - "to be a centre of excellence for cost–benefit analysis within the Australian Government" (bottom of page 162).
Attention: Dr. Helen Haines - Federal Member for Indi (north east Victoria)
Helen Haines calls out pork-barrelling | The Border Mail |
In addition to your local newspaper, Matt O’Sullivan and Katina Curtis (SMH), Katherine Murphy (The Guardian) and Marion Terrill (The Grattan Institute) have reported extensive pork-barreling (expending other peoples monies for their party’s political benefit) generally on new projects without a positive and demonstrative NPV.
· Written Question With Notice
A federal ICAC would investigate corrupt behaviour, but only AFTER it had festered.
Whereas my below expounded Discussion Paper explains that by the Commonwealth Parliament legislating to obligate States and Territories to submit a Conforming Cost-Benefit Analysis for each future State or Territory infrastructure project over $20m to the Commonwealth Productivity Commission at least six months BEFORE Financial Close for appraisal. That will initially save the States/Territories Public Purses (that are 46% funded by the Commonwealth) $3b circa annually.
That saving will over double annually after Australia’s States and Territories –
A) are required to also submit a Conforming Cost-Benefit Analysis for proposed road and communications infrastructure projects; and
B) become more familiar with measuring the tangible and intangible costs and benefits, in particular applying plausible patronage/usage forecasts and not Best Guess scenario usage forecasts.
My Annexure A evidences that billions of taxpayer funded dollars have recently been squandered annually on poorly planned and inadequately appraised State 'rail infrastructure projects' across Australia resulting in cost blowouts, completion delays, usage/patronage paucity.
As explained below in July 2009 a landmark (40 pgs) Productivity Commission paper 6. Evaluating major infrastructure projects: how robust are our processes? - published on the Productivity Commission website offered for the Productivity Commission "to be a centre of excellence for cost–benefit analysis within the Australian Government" (bottom of page 162).
Federal legislation needs to be passed that obligates Australia’s six states and two territories to compile a compliant Conforming Cost-Benefit Analysis for each potential infrastructure project - over say $20 million – and submit it to the Productivity Commission at least six months prior to Financial Close.
A Conforming Cost-Benefit Analysis would include a Base Case Financial Model of at least 20 years of projected future cashflows in a large Excel spreadsheet that –
· calcs that the IRR is higher than the hurdle rate (required yield); and
· ideally evidences a positive and demonstrative NPV that should not be negative. .
The Commonwealth Productivity Commission has a proven track record of performing its productivity measurements “at arm’s length”. It is not conflicted in the manner that Infrastructure Australia patently is.
An Assessment of Australia’s Future Infrastructure Needs - The Australian Infrastructure Audit 2019 (640 pages) pitched all sorts of infrastructure opportunities from energy, water, telecommunications, to social infrastructure such as hospitals, schools and parks. In promoting its wares, the word ‘profitability’ appears only three times in 640 pages. The three words ‘cost benefit analysis’ appears only twice in this voluminous marketing manuscript. Patently, the entity that published a 640 pages document in 2019 professing to be an Australian Infrastructure Audit, has no focus, or places no importance, on auditing the profitability/utility of "infrastructure opportunities from energy, water, telecommunications, to social infrastructure such as hospitals....". Its focus is NOT on 'value for money', nor Return on Investment.
Hence, Infrastructure Australia –
a) is not equipped to, or interested in, appraising/measuring/auditing Conforming Cost-Benefit Analysis for major infrastructure funded from the Public Purse; and
b) would not be willing to be responsible for the mathematical costs and revenues forecasts therein in the manner that the Productivity Commission offered to be in July 2009 – evidenced below.
Below are two pertinent articles
· Of Australia’s 32 biggest infrastructure projects, just eight had a public business case – The Conversation - Marion Terrill
· Infrastructure Australia: Failing infrastructure wrecking productivity - June 13, 2019 Leith van Onselen who previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
Australia’s Commonwealth Productivity Commission’s focus is to ensure that the Public Purse is expended productively, meaning cost-effectively.
As alluded to above, in July 2009 a landmark (40 pgs) Productivity Commission paper 6. Evaluating major infrastructure projects: how robust are our processes? - published on the Productivity Commission website -
A. identified concerns about Australia's six State Governments' incapacity to undertake robust Cost-Benefit Analysis for prospective transport and communications infrastructure projects; and
B. offered for the Productivity Commission "to be a centre of excellence for cost–benefit analysis within the Australian Government" (bottom of page 162).
Below is an extract from section 6.4 Conclusions of 6. Evaluating major infrastructure projects: how robust are our processes? (page 162) written by Henry Ergas and Alex Robson and published on the Productivity Commission website in Aug 2009:
“We are not optimistic that changes to cost–benefit analysis processes alone can counteract these powerful trends. Nonetheless, we think three changes would have merit:
• a requirement for all cost–benefit analyses to be disclosed that would also highlight which projects had not been subjected to economic project evaluation
• far greater and systematic auditing of cost–benefit analyses, both at the stage of the financing decision and post-project completion. In contrast, there is little or no such audit currently, and in many instances, cost–benefit analyses are not even updated, maintained or properly archived after the initial ‘go/no go’ decision is taken.
• the establishment of a centre of excellence or reference for cost–benefit analysis within the Australian Government, preferably in an independent entity, such as the Productivity Commission.”
Australia’s Commonwealth Productivity Commission –
(i) has the specialist cost-benefit appraisal expertise that Australia’s six States and two Territories patently no longer possess; and
(ii) would make objective decisions at arm’s length, and place its audit of each Conforming Cost-Benefit Analysis submitted by a State or Territory Govt in the Public Domain before Financial Close.
In layman’s terms, this ground-breaking paper published on the Productivity Commission website in July 2009 said (to the States and Territories) send us your prepared cost-benefit analysis, that identifies/quantifies all the tangible and intangible costs and benefits, and we will appraise it. Then we will assist you render it compliant to calc the profitability or loss.
In July 2014 the Commonwealth Productivity Commission published Productivity Commission Inquiry Report into Public Infrastructure with recommendations to bringing down costs of infrastructure projects and minimise delays. The report highlighted that whilst efficient infrastructure provides services which both improve productivity and quality of life; poorly chosen infrastructure can reduce productivity and financially burden the community for decades. A key message of this Productivity Commission report was that there is a need for a complete overhaul of poor processes currently used in the development and assessment of infrastructure investments. Reviewing a wide range of economic public infrastructure projects, the Productivity Commission found many examples of where inadequate processes and project governance have led to costly outcomes to users and taxpayers.
Since the above July 2009 (40 pgs) offer, Annexure A evidences that billions of taxpayer funded dollars have been squandered annually on poorly planned and inadequately appraised State 'rail infrastructure projects' across Australia resulting in cost blowouts, completion delays, usage/patronage paucity and associated Government ministers ducking for cover.
Andrew Constance is the top of the list to Bung on the Bulldust to justify simply indefensible NSW transport infrastructure projects and then deceitfully shelved the cost off-balance sheet into “Transport Asset Holding Entity“ which the NSW Auditor General, Margaret Crawford refused to accept:
· ‘Vehicles for deception’: Transport plan fails the truth test - SMH - Tony Harris former NSW Auditor-General -Aug 20, 2021.
· Former NSW auditor general blasts Coalition for attempting to 'reduce scrutiny of government' activities - The Guardian - 2 Nov 2020
· Urban congestion funding for Coalition and marginal seats far outstrips safe Labor seats, report finds - The Guardian - 20 Mar 2022
· Liberal MP: Politicians ‘addicted’ to buying votes, take spending out of their hands - SMH - Matthew Knott 27 March 2022
· How predictable: another megaproject has suffered another cost blowout Grattan Institute Marion Terrill - 11 Aug 2021
· They keep bringing a bigger barrel - Grattan Institute - Marion Terrill - 21 March 2022
If the Public Purse is going to be expended demonstrably more cost-effectively than over recent years, it is paramount that the Productivity Commission audits each Conforming Cost-Benefit Analysis. Otherwise it will be a continuation of “smoke and mirrors” and too often stupid infrastructure projects like Central Business District and South East Light Rail that –
A. cost double the initial provision/construction forecast because “In November 2013, the project business case summary estimated the CSELR would cost $1.6 billion.”; and
B. took a year longer than predicted with lengthy disruptions to local small businesses that successfully litigated the NSW Govt due to lost sales; and
C. destroyed Sydney’s iconic George St.
Over the next 50 years diesel or electric buses with rubber tyres over the two CSELR routes to Randwick and Kingsford would have cost 10% circa of the $3+ bil to lay tram tracks plus 50 years of operating costs of those overly frequent, heavy trams that now have advertising stickers over the windows to conceal their emptiness. Those whopping 120 tonnes 67 metres long CSELR trams provide only half the pick-up stops of the former Govt buses and don't run on the smell of an oily rag.
Separately, the NSW Auditor-General reported that the NSW Govt could have saved up to $25 million on the cost of the $38 million Albert Tibby Cotter Walkway at Moore Park. For over 300 days each year, no one uses it. The former set of traffic lights that crosses ANZAC Pde would have disrupted vehicles only when a big match was being played at the SCG, or former SFS. Traffic lights to enable patrons to cross the light rail to the SCG would similarly only disrupt for a big match, in the same manner that pedestrian traffic lights have disrupted vehicle flows across Australia for at least 60 years.
Prior to retirement, this Writer worked for CBA for 37 years, with the final 19 years in Infrastructure Finance. Some of the larger projects that he worked on were construction of Sydney Harbour Tunnel by Transfield/Kumagai, Agent bank for 37 1st ranking debt financiers of $3.95b when Macq Airports Groups funded the privatization of Sydney Airport. He was the Agent bank when Schiphol purchased Brisbane Airports Corp. He worked on over 35 large syndicated loans during those 19 exhilarating years and dealt with over 50 global banks.
46% of State Govt infrastructure revenues are funded by the Commonwealth. Hence, the Commonwealth Govt, that has a legal obligation under the Australian Constitution to ensure that all revenue monies it allocates to the States are not wasted, has sat on its hands in breach of SECT 96, SECT 97 Audit and SECT 98 of the Australian Constitution, perhaps due to conflicts of interest.
SECT 96
'Financial
assistance to States'
of the Australian Constitution –
A. allows the Commonwealth Parliament to make financial grants to the States predicated "...on such terms and conditions as the Parliament thinks fit....". Due to the magnitude of the on-going annual tax payer wastage evident in Annexure A, SECT 97 Audit behooves the Commonwealth Govt. to 'Centralise' responsibility for measuring, quantifying and ranking all proposed infrastructure projects >$20m, upon the ‘efficiency experts’, namely the Productivity Commission.
B. places a legal obligation upon the Commonwealth Govt to pass specific new laws to ensure that the 46% of Australia’s six States annual revenue expenditure funded from the Commonwealth Govt is expended cost-effectively, meaning the quantified benefits exceed the quantified costs.
Consequently, SECT 96, SECT 97 Audit and SECT 98 of the Australian Constitution behoove the Commonwealth Parliament to enact legislation to stop Australia’s six States and two Territories further wasting billions of the 46% of Australia’s six States annual revenue expenditure as evidenced in Annexure A of my Discussion Paper.
My Discussion Paper evidences that recent NSW Premiers (Baird & Berejiklian) were adept at authorising new rail projects that have proven to be highly cost-ineffective. My Discussion Paper explains the need for such new regulatory legislation. Those two former NSW Premiers overlooked that Sydney already had a heavy rail line between Circular Quay, Wynyard, Town Hall and Central Railway, when they agreed to build a parallel, juxtaposed, adjacent light rail (taking out Sydney’s famous George St to motor vehicle traffic) that cost $1 billion dollars of the total $3.147 billion cost. It was completed 12 months late, with a lot of litigation.
Below is the text of a proposed 'Written Question With Notice’ (3rd Attachment) to place in the House Despatch Box on CD (1st and 2nd Attachment) and A4 during Question Time a 'Written Question With Notice' (3rd Attachment) for attention of the new Federal Treasurer, Jim Chalmers. Final Attachment is evidence of my 2nd Degree at Macquarie University.
Will the Federal Treasurer champion new Commonwealth legislation that will initially save approx three billion Australian dollars that have been wasted annually over recent years from amongst the $125 billion circa monies funded by the Commonwealth to the States annually, by relying upon SECT 96, SECT 97 Audit and SECT 98 of the Australian Constitution, for the Commonwealth Parliament to enact new laws to -
1. compel Australia's State and Territory Governments to submit a Conforming Cost-Benefit Analysis to the Productivity Commission at least six months prior to Financial Close for each proposed new rail infrastructure project with a forecast Capex that exceeds $20,000,000; and
2. obligate the Productivity Commission to -
(a) audit each submitted Conforming Cost-Benefit Analysis for each State or Territory Government's proposed new rail infrastructure project;
(b) allocate a score out of 100 points for each proposed rail infrastructure project with forecast Capex that exceeds $100,000,000; and
(c) provide that score and the supporting calculations (for each proposed rail infrastructure project with forecast Capex that exceeds $100,000,000) to the relevant State or Territory Government at least three months prior to the proposed Financial Close; and
3. require the pertinent State or Territory Government to publish (within two weeks' of receipt of) the Productivity Commission's score out of 100 and supporting analysis of its Conforming Cost-Benefit Analysis on its State or Territory 'Transport' website to inter alia facilitate Community Consultation?
Stealing from the ‘Public Purse’ for your own political gain is no different to stealing from your employer for your personal gain.
If an employee embezzles $60,000 or $6 million from his/her employer and is apprehended, he/she will be Sentenced to a term in jail as Punishment and as a Deterrent to others. If a brazen bank robber steals at gun point $40,000, he/she would also be Sentenced a similar Punishment for their theft. Our laws have to change to render politicians that steal from the Public Purse for their own personal benefit on projects, without submitting a Conforming Cost-Benefit Analysis to the Productivity Commission, similarly open to jail incarceration Punishment if it cannot refund the wasted millions. Australia’s legislators are Slow Learners from previous mistakes of the distant past.
Upon the above legislation being passed by the Federal Govt obligating the States and Territories to submit a Conforming Cost-Benefit Analysis to the Productivity Commission at least six months prior to Financial Close for each proposed new infrastructure project (starting with rail infrastructure projects and broadening the scope from there) with a forecast Capex that exceeds $20,000,000, the pertinent State or Treasury Ministers could be litigated under both criminal law and civil law if she, he or they failed to so provide, and the particular costly project was found to be materially uneconomical – meaning the construction and operating costs were far greater than patronage revenues from passengers, and alternative bus transport was demonstrably cheaper and more flexible to user demands:
· The pertinent State or Territory ‘Treasury Dept’ that provided funding for the infrastructure project could litigate the Minister/s for financial damages if it was found that the pertinent Minister/s failed to undertake requisite ‘due diligence’ by submitting a Conforming Cost-Benefit Analysis, but rather exhibited gross negligence and willful misconduct in appraising the utility of the infrastructure project and the project failed to achieve the Minister’s claims/commitments.
· A Class Action could be run through the civil courts against the particular Minister/s by citizens that suffered a financial loss as a result of the particular State or Territory infrastructure project, provided independent appraisals reported that the infrastructure project was largely concocted on the back of an envelope without having lined up requisite Wooden Ducks specified in a Conforming Cost-Benefit Analysis.
As the Productivity Commission further invests in C-BA resources/skill/expertise (employing additional economic analysts and civil engineers) to even better quantity its Gatekeeper ‘Public Purse’ safety net role, the Gatekeeper will reap additional economies of scale – not attainable by individual States, too often stabbing into the unknown and learning from their costly mistakes.
The Writer will expeditiously respond in writing to any written questions sent to him re this email and/or his Discussion Paper.
The Writer welcomes speaking with anyone that wants to ensure that Australia’s six States and two Territories expend their fiscal budgets a lot more effectively/efficiently by accepting the Productivity Commission’s comprehensive and visionary offer in 2009 "to be a centre of excellence for cost–benefit analysis within the Australian Government, preferably in an independent entity, such as the Productivity Commission. The Productivity Commission’s role would be scrutinizing, quantifying and reporting on each Conforming Cost-Benefit Analysis submitted to it by States and Territories, initially restricted to future proposed rail infrastructure projects, to enable the Productivity Commission to grow expertise.
NB: When working for CBA, the Writer executed about a dozen Confidentially Agreements (usually with Macquarie Bank) in order to receive an Information Memorandum from Macq Bank that promoted a new infrastructure project. I am comfortable to execute a CA with you that undertakes that I would not communicate with a 3rd party/s about any discussions that I had with anyone keen to assist reduce further wastage of the Public Purses, as enunciated herein.
Phil Johnston aka Bank
Teller
0434 715.861
