Welcome to BRR Media.  Today we’re speaking with Michael Hollingdale who heads up the National Projects practice at Allens and he’s based here in Perth.  Welcome Michael.

Thank you David pleasure to be with you.

Michael the recent Western Australian budget highlighted some $207 billion worth of construction and projects that are currently underway.  Is the current rate of infrastructure development in WA enough to meet the state’s current and future economic needs?

David that figure of $270 billion is a staggering one, isn’t it?  It’s increased dramatically in the last couple of years from about $180 billion.  To set the scene a bit, to understand what the needs are, it’s worth understanding that in WA the current population is 2.3 million, and that’s expected to rise to over 3 million in the year 2026.  So we have huge growth in this state, which is affecting both the social needs and the economic needs for infrastructure.  So dealing with Perth for example, we have sporting facilities that are in plan, we have a lot of hospitals being developed and the like, and as well as the usual run of the road expansions.  Then in the north where the mining actively is, we have large facilities being required to be expanded, both in ports, related road infrastructure and railways; so the demands are huge.  And whether we’re meeting them, those needs I’d say we’re getting – making good progress but we have a long way to go and we’re seriously constrained by the Government budgets.

In that budget there was a wide range of infrastructure funding, ranging from electricity, to roads through to hospitals.  What are the key needs from a business perspective?

Well there are two areas.  There’s the social infrastructure and the economic.  So dealing with the economic first, that is largely in the rail and port facilities, in other words getting the product from pit to port, we have bottlenecks and that’s likely to increase as we expand the operations of these major mines and new mines.  In the social scene we’ve got roads and railways to meet an ever growing population expansion in Perth and its regions.  In fact 50,000 new jobs or 70% of new jobs created in Australia in the last 12 months have been in Western Australia, so a sign of just how quickly we are growing as a state.  So it follows that there’s going to be a huge demand on housing, hospitals and indeed the transport facilities.

And where do you see the funding for these projects coming from?

Well the traditional sources.  Mining royalties are a large source of income for this state, we get federal funding for infrastructure projects and we get general revenue for the usual run of the mill infrastructure projects, whether it be in the hospital sector.  We’re also getting – starting to use the PDP model of delivery, where clearly the private sector is providing finance.   We’ve approached that model carefully, this state’s learnt from experiences of other states and they’re approaching it with a couple of – they’re using that with a couple of projects at this stage and with others they’re adopting more traditional procurement models.  For example with the Gateway WA project and the precincts of the new expanding Perth Airport, the road network will be done through an Alliance Model, so no private sector funding and some hospitals are being delivered under managing contracts.  And other hospitals being delivered under a design, build, operate and maintain model, so there’s a real mix and I think the Government should be commended for adopting appropriate procurement models for the particular project.

So Michael finance aside, what are some of the barriers to getting these projects off the drawing board and under way?

A lot of these projects are highly complex engineering projects, so first of all there needs to be thorough feasibility studies done and that takes a lot of engineering skill and expertise and budgeting.  So there’s a lead time for that, so purely by reason of the complexity there’s time.  Second is environmental approvals, we have highly sensitive areas in which some of these projects are to be conducted and that takes considerable time to ensure we have the projects delivered in an environmentally sound manner.  Another key problem for us is the labour shortage, we have an acute labour shortage, and that impacts upon cost and availability.  Finally there are some projects which need negotiation with the state through state agreements and that can be a lengthy process itself.

Just finally, is global economic uncertainty making some infrastructure projects in Western Australia unviable?

Yes it is and that simply goes to the heart of the feasibility of these projects.  The economics of that are highly sensitive and affected by global consideration.  So whilst there remains uncertainty that gives rise to a whole knock on affect in terms of predicting whether there’s a market for our goods and what the market is.  There’s another factor and that’s affecting us nationally, and that relates to the growth of resources projects in other parts of the world, be it Africa or South America, where we’re getting some very keen competition for supply to the likes of the countries such as China and India.  So it’s not an easy calculation, it’s a very complex one and multi-national players in our market are by nature conservative, and so as that volatility in the economic market pertains, that conservatism will translate to some revision of these expansion plans.

Michael thank you again for your time.

Thank you very much David.