The looming challenge of the global financial crisis has brought to a head calls for the Australian Government to step in and stimulate the economy, particularly by increasing its spending on key infrastructure projects – such as roads, ports, rail networks, telecommunication and electricity infrastructure.

On 12 December 2008 the Rudd Government announced a $4.7 billion nation building package with the stated intent to strengthen the Australian economy and create Australian jobs.

However, those spruiking increased government spending on infrastructure often forget the vital role the private sector plays in key infrastructure assets.

Although historically the preserve of government, today Australians increasingly rely on private sector businesses, such as BHP-Billiton (rail and port facilities), Alinta (Gas) and AGL (electricity), and Telstra and other telecommunication companies (mobile and fixed communication networks), for the provision of essential economic infrastructure.

Infrastructure in Australia was historically fully owned and operated, mostly inefficiently, by the public sector. The key microeconomic reforms and privatisations of Commonwealth and State government agencies in the 1980s and 90s increasingly involved the private sector in both owning and operating some of this infrastructure and this resulted in significant productivity gains and improved efficiency.

However, investment in new infrastructure by the private sector has slowed in recent years, and across much of the economy investment is failing to keep up with demand – leading to capacity constraints that harm our international competiveness.

It is increasingly apparent that the regulatory settings put in place all those years ago (in particular the myriad of third-party access regimes) to encourage more efficient use of existing infrastructure, are now holding back investment in essential new infrastructure projects – such as in port and rail link capacity and high speed broadband.

These impacts were thoroughly discussed at the recent Australian Davos Connection (ADC) conference on infrastructure in Brisbane. In the working group I co-chaired, it was recognised that the complexity of access regimes and the uncertainty they create in the minds of potential investors have the potential to stymie investment in new, large infrastructure projects. Despite business leaders and policy bodies such as the Productivity Commission having long argued the complexity of access regimes these issues have not been addressed.

It was recognised that although we have seen productivity gains from access regimes and broader competition policy initiatives over the past 20 years the current challenges (including climate change) requiring economy-wide modernisation, upgrading and investment in infrastructure, has highlighted underlying failings of the current system requiring urgent regulatory reform. These regulatory frameworks must encourage investment – not discourage it as they do now.

To encourage this next stage of infrastructure investment investors need two things:

• third party access arrangements flexible enough to reflect the quite different risks attached to different infrastructure projects; and
• regulatory certainty that the terms and conditions of access will not change a few years down the track.

Investors need to know that a commercial return is not at risk from regulatory intervention or they will spend their money elsewhere.

Australia’s current raft of industry specific access regimes typically fail on both points.

Regulating access to new infrastructure in a hypothetical way that ignores fundamental real world economics and the different risks of these projects doesn’t work.

Investors looking to upgrade the electricity grid, railways, broadband networks or port facilities are looking for certainty over a 15 year period – current access regimes cannot deliver this.

Critically, in the current financial and economic climate, the effect of these regulatory impediments to efficient investment is amplified, and the time for a wholesale review of how they work is now. Regulatory regimes, as we have seen in recent times, can be either a competitive advantage for an economy or a competitive disadvantage – let’s make sure that ours is the former, not the latter.

Kate McKenzie
Group Managing Director, Telstra Wholesale