The head of Australia's newly-elected federal government, Mr Tony Abbott, says he wants to be known as the infrastructure prime minister, and while he is committed to building more roads one of his first acts was to give the green light to the multi-billion dollar Inland Rail project to provide a new rail link between Melbourne and Brisbane. Abbott clearly understands that providing a nation with high-quality and adequate infrastructure is the foundation for economic growth. Unfortunately not all governments think like this and then wonder why congestion is so acute and poorly-maintained structures start to fail.
If Abbott is serious about investing in infrastructure then he needs to take action on two fronts. The rules governing pension funds need to be changed to release the trillions of dollars locked away for investment in infrastructure projects, as happens in other countries. For example, Canadian pension funds have been buying up assets such as ports in Australia and Britain's HS1 high-speed line linking London with the Channel Tunnel as they regard them as sound long-term investments which will give them a good return.
Australia also needs to relax its approach to public-private partnerships (PPPs) so that they become real partnerships where the risk is shared equitably, rather than expecting the private sector to bear all the risk, which is expensive as the cost of covering the risk has to be factored in, and can lead to bankruptcy if revenue falls below expectations which is in nobody's interest. Politicians don't always appear to appreciate that private companies are in business to make a profit - if they don't they fail.
Australians would do well to look at Canada as its approach to PPPs seems to be quite successful. The philosophy is to leave a relatively small share for the private sector to give firms a real stake in the project to encourage them to take a long-term view while keeping risk at a manageable level. This can be done through fixed-term operating and maintenance contracts, which are increasingly popular elsewhere.
The second piece of good news this month is the European Union's (EU) decision to treble its contribution to infrastructure investment to €26.25bn over the next seven years. The EU wants to allocate the funds to a new core network of nine corridors with emphasis on improving east-west links. It says that missing links, particularly across national borders, are a major obstacle to the free movement of freight and people.
It is certainly true that there are gaps in Europe's rail network which need to be plugged, but a lot of the problems relating to cross-border rail traffic have more to do with poor coordination and cooperation between infrastructure managers and operators in neighbouring countries and an inability to develop successful cross-border rail services. Such problems highlight one of the main weaknesses of splitting the infrastructure from train operations.
Indeed, some key cross-border links have been established but they have yet to reach their full potential and in some cases it is difficult to see when they will. For example, the high-speed line from Liège, Belgium, to the German border carries only nine trains a day in each direction, not even an hourly-interval service. The Channel Tunnel and its high-speed connecting lines to London and Lille are all operating at well below capacity. The new line from Perpignan, France, to Spain's second city of Barcelona is also getting off to a very slow start due to technical and political problems and this line is aimed at both passenger and freight traffic.
There is little point in building new railways if there is not a clear idea of how to exploit them efficiently and profitably. Infrastructure managers need to take a much more commercial approach to operating high-speed lines by looking at ways to stimulate demand such as lowering access charges in the early years of operation or offering new entrants reduced rates to cut the start-up costs for operators while they build up the traffic.
Railways are also still very poor at developing conventional cross-border services and there has been a marked deterioration in the quality and number of cross-border passenger rail services in Europe during the last few years. The planned withdrawal of the recently reintroduced overnight service between Paris and Rome because of difficulty in obtaining daily paths is just the latest example. Such services require good cooperation between the parties involved, but sadly this is often lacking.
Whilst it is great that the EU wants to put money into cross-border infrastructure improvements, some of this investment risks being squandered if the EU does not take a closer look at why so many international services are failing in order to find solutions to the problem. A starting point could be better cooperation between infrastructure managers that will enable operators to flourish.
