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A matter of skill or scale - Bridging the gap in infrastructure development in regional Australia.

Claire Braund

The Regional Institute Ltd,


Australia's total investment in infrastructure is $400 billion, or one third of total capital stock. The Commonwealth and State Governments own about 85% of all infrastructure. Our private sector undertakes about one-third of all investment in economic infrastructure, such as energy facilities and airports, and about one-fifth in social infrastructure, such as hospitals and universities.

Viable infrastructure development in regional Australia is imperative for long-term economic growth. Despite this there is a reduction in the provision of infrastructure in regional areas. Governments are withdrawing from infrastructure development. Between the 1960s and the 1990s annual investment in public infrastructure fell from 9% to 5% of GDP. State and local government investment fell from 7.5% to 3.5% in the same period.

While major companies, venture capitalists and others are interested in infrastructure projects, the lack of an acceptable internal rate of return is keeping many of them away from regional Australia. Current economic methods of assessing regional infrastructure projects do not seem to be able to justify investment. The gap between those looking for money to fund regional infrastructure projects and those with the power to grant or lend money is widening. Private equity investment in infrastructure has largely by-passed the regions.

Do regional areas lack the skills required to attract public and private sector investment or is the size of most regional economies simply no match for the scale of the infrastructure projects required by investors? These questions are the focus of this paper that presents findings from a series of financial planning workshops held in regional centres across Australia in May this year.

Background to the workshops

The Institutional Investor Information Service (IIIS) was initiated in 1995 as a partnership between the Commonwealth Government, state and territory governments and the Australian Council for Infrastructure Development (AusCID), the industry lobby group for the major infrastructure providers in Australia. The specific aims of IIIS were to:

  • Enhance economic growth in rural and regional Australia by facilitating greater private investment in public infrastructure;
  • Improve the links between the proponents of regional infrastructure projects and institutional investors; and
  • Overcome the significant " information gap " between these two groups.

A IIIS workshop program in 1997/98 took institutional investors into 18 regions to explain their needs to proponents of infrastructure projects. Representatives of major institutional investors met with business people and others in country towns to explain the information, project analysis and presentations they required from proponents. In addition 68 local projects were assessed, but none were found to achieve investor ready status.

This was attributed to a lack of financial and business planning skills and a training program to assist proponents to get projects to an acceptable standard to meet the requirements of government and institutional investors was endorsed. This became the 2000 workshop series.

The 1997/98 IIIS program also planned to establish an expert panel of financiers to provide subsidised advisory services to proponents, review projects at the development stage and draw up assessment guidelines. An Internet register of projects that had been scrutinised by the expert panel and could be picked up by investors was to be set up. The register never eventuated, partly because the review and assessment service did not get off the ground, but also because of regional reluctance to use the service.

In hindsight the assumption of the 1997/98 IIIS workshops that people in regional areas lacked financial skills was only a small part of the failure of all 68 projects to meet investor ready status. Other factors that played a major role were highlighted by Rod Brown, Managing Director of Australian Project Development, in a report from the workshops.

Conclusions from 1997/98 workshops

  • Regional markets often lack the critical mass required to guarantee revenue streams.
  • Public interest in regional projects creates wariness among private sector investors - how do they capture social and community benefits?
  • Politics plays a major role in project development.
  • Smaller projects suffer from 'Orphan Syndrome,' where a high percentage of costs are associated with complying with accountability requirements.
  • The interdependence of projects needs to be realised - take a helicopter view.
  • The risks being taken by investors need to be understood.

Discussions and Findings from the 2000 workshops

The aim of the workshops was to provide training in financial and business planning skills for public and private sector funding for regional infrastructure projects. About 120 people attended the four workshops in Townsville, Bendigo, Nowra and the Barossa Valley, from the private sector and state government agencies. A final workshop is planned for Dubbo in August.

1. Business and financial planning

The workshops were based around a paper presented by Dr Peter Abelson, Professor of Economics at Macquarie University, titled "Preparing Business Plans and Economic Feasibility Studies for Private Sector Infrastructure Provision." The paper details how to prepare a business plan and the methods of financial evaluation used to assess infrastructure projects. The paper is available on the AusCID website at

The workshop discussions indicated that participants' felt their understanding of business and financial planning had been reinforced by the workshop, which established a benchmark for understanding these issues. Most participants were comfortable with the level of financial skills required, but felt they lacked understanding of how to negotiate the official and political processes involved in the development of infrastructure projects. There were clear signs that they felt unsure about the communication and organisational management issues.

2. Project development

Dr Glen Withers, Professor of Public Policy at ANU and the former Chair of the Federal Economic Planning and Advisory Commission, attended the Bendigo and Barossa workshops and focussed his presentation on the process of getting a project off the ground, which he identified in three stages.

1. Commercial: Preparing the business plan

2. Official: Costing the business plan, social and community implications.

3. Political: Selling the benefits to ministers, media, and interest groups.

Dr Withers spoke about "mutual incomprehension" that exists between the commercial and official stages, and how overcoming this can be the most difficult part of attracting funding to a project.

His observations struck a strong chord with participants who discussed at length their own problems in moving projects through the pipeline. Several case studies clearly illustrated that proponents had all but forgotten the communication, negotiation and organisational aspects, so focussed were they on the financial and business planning elements. Dr Withers recommended that proponents find a local champion to be 'the voice' for the project and a broker to bridge the gap between the private and public sector cultures.

3. Regional Case Studies

While the economies of the four regions were diverse, the issues surrounding the provision of infrastructure were common. From Townsville to Bendigo the majority of comments related to aging and inadequate water, power, telecommunications and transport infrastructure. Many participants said that private investors could not attract a sufficient rate of return from large-scale projects, but were not interested in small projects (less than $20million) unless they were combined. There was a strong view among almost all participants that many projects of economic and community benefit will require Government funding or part-funding.

The Australian Council for Infrastructure Development maintains that Government has a clear role in funding social and community benefits of infrastructure projects. It advocates a cooperative private/public sector approach to infrastructure development, such as that undertaken in the United Kingdom. More details on these partnership arrangements are available at


In Townsville two transport case studies were discussed. The first involved linking two existing rail lines used to freight coal, and the second constructing an access corridor to the Townsville Port that by-passed residential areas. In both cases the group felt that there was insufficient economic justification to fund the projects. This may have been because all opportunities from making a return from these projects had not been considered, but was more likely that the return on investment as measured under current economic analysis was inadequate, despite the obvious community and social benefit. This raised the issue of how social and community benefits can be capitalised by a private investor and what role the Government has to play in jointly funding infrastructure with a social component

The inter-dependence of many projects was apparent. For example, the Chevron gas pipeline from Papua New Guinea was dependent on the level of demand for gas in Queensland coastal areas. Conversely the development of many infrastructure projects in these areas, including a power station at Townsville, is seen as being dependent on the gas from PNG. There appears to be a role for Government in establishing a national framework for infrastructure and working with industry to identify a catalyst for regional projects.


In Bendigo the amount of paperwork required for projects and the problems associated with the big city approach to assessing projects in regional areas were raised. Proponents were frustrated by the fact that to have any credibility with Government agencies their project required rubber stamping in the form of an expensive analysis by one of large city-based accounting firms.

The Australian Local Government Association addresses this issue by advocating that proponents should not waste time putting together business plans as investors will always want to do their own financial analysis as to a project's viability. The ALGA advocates that proponents spend time and money sourcing investors, assessing the benefits and obtaining the widespread support required (the official and political stages identified by Glenn Withers).

The Bendigo workshop also suggested that the fragmentation of the Government funding process and the lack of documentation on how funded projects do or do not work put regional proponents at a disadvantage. This issue came up during discussions on a case study of the proposed Bendigo Telco, when participants recommended that funding should be sought from the Government to develop a working model for investing in infrastructure that could then be applied to other projects.


In Nowra, participants felt that the size of the majority of regional infrastructure projects (less than $20 million) impacted on their ability to attract investment and that the regions had less access to sources of venture capital. They were concerned that regional parochialism is hindering project development and preventing a helicopter view. This is being reinforced by the Government's competitive approach to grant funding, which pits proponents against one another, rather than bringing them together within an identifiable regional framework. This would facilitate an incremental approach to funding smaller individual projects.

Barossa Valley

Poor planning, lack of project coordination and knowledge not being transferred between Government agencies were seen as issues affecting infrastructure provision in the Barossa Valley. There is duplication and lack of communication between business, industry associations, community groups, consultants and state, federal and local governments in the provision of programs and services to regional Australia. More informed discussion at local, state and federal level on options for developing regional infrastructure needs to take place.


  • There is a high level of frustration in regional communities when projects perceived to have real community, social and economic benefit, aren’t able to attract funding.
  • People are becoming cynical about workshops and 'talkfests' that do not present any real solutions to how to attract investors to regional Australia.
  • Participants are comfortable with the financial skills required, but lack communication, negotiation and organisational management skills.
  • They are experiencing difficulties in understanding and finding pathways to 'break through' the commercial, official and political stages of project development.
  • The internal rate of return on many worthwhile regional projects is simply not sufficient to attract private investors under current financial measurement standards. The role of Government in funding the social component of infrastructure needs to be considered.
  • There is duplication and lack of communication between business, industry associations, community groups, consultants and state, federal and local governments in the provision of programs and services to regional Australia. More informed discussion at local, state and federal level on options for developing regional infrastructure needs to take place.
  • The competitive grants process is pitting regional centres against each other to attract funding. Each project is treated in isolation instead as part of a national infrastructure framework.
  • The funding process needs to be documented to give flow-on benefits to other projects.


1. A national framework should be established to:

a. assess infrastructure requirements in regional Australia;

b. identify the role of government in funding the social component of projects;

c. facilitate incremental investment in infrastructure development;

d. develop a clear policy on the issue of public/private sector partnerships; and

e. review the funding process

2. Workable models should be available to enable proponents to navigate the commercial, official and political pathways involved

3. Develop a register of investors, qualified regional financial analysts and project brokers to 'bridge the gap' between the proponents and the investors.


Ideas, enthusiasm and business acumen are flourishing in regional Australia. Proponents of regional infrastructure projects feel they possess or have access to the financial skills required to develop projects, but are finding it difficult to meet the needs of investors. Communication, negotiation and organisational management need to be improved. Proponents want information on the process of attracting funding and workable models to follow. They need clear pathways to lead them through the commercial, official and political processes to help overcome the barriers presented by the scale of many projects.

There is a strong role for Government in setting a strategic direction and developing a national infrastructure framework. Government must lead, not manage. This framework should address the role of Government in delivering the social and community benefit components of infrastructure projects.

Stop working from the status quo or things will never change. A re-think of the funding and financing of regional infrastructure projects is required. Country Australia would benefit from a nationally coordinated approach to Government funding and the development of a model for partnership investment with the private sector. Flexibility is vital - when the rules don't fit the size of the economy then we need to change the rules.

"If infrastructure planning and delivery is increasingly left to market forces to determine, the Australia of 2050 is more likely to be a series of semi-linked coast conurbations along the east coast and in the south west. Is this in the national interest socially, economically or environmentally?"

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