2017 Major Projects Pipeline Report Adrian Hart, Senior Manager Infrastructure & Mining

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1 2017 Major Projects Pipeline Report Adrian Hart, Senior Manager Infrastructure & Mining

2 Major Projects Pipeline Report Presentation Outline Key findings of the 2017 Pipeline Report The outlook for Major Project work The economic outlook Queensland s investment challenges Recommendations

3 Major Projects Pipeline Report Key messages Major Project work reaches bottom in 2016/17 Just under $5bn, back to pre-boom levels. Rising activity from 2017/18. Economic growth requires discipline in infrastructure development Productive projects are developed and funded in a timely manner Strategy is flagged to industry well in advance, and is adhered to Risk that Queensland will underinvest in infrastructure Public investment per capita and as share of GDP back at lows Infrastructure investment after 2017/18 needs new funding All funding options need to be on the table

4 Stronger outlook compared to the 2016 Report but much remains unfunded

5 Outside of mining projects, much depends on the public sector for funding

6 Mining the largest sector, but roads has the strongest growth

7 SE Qld the strongest region, but Northern Queensland has the strongest growth

8 Strong cycle ahead in major road works

9 Rail work could grow strongly but remain unfunded

10 Water outlook also depends on funding

11 Water outlook also depends on funding

12 NBN, renewables and Townsville Stadium providing another cycle of work

13 Mining major project work to remain well below previous levels

14 Non-mining and heavy industry major project work to improve from here

15 Global economy starting to regather some momentum, but its unspectacular 6% Annual growth in Real GDP 4% 2% 0% % -4% World OECD Australia Year ended December Source: BIS Oxford Economics, OECD, Consensus

16 with quite a few risks to the outlook

17 particularly regarding President Trump World: GDP growth 3.5 % year Forecast Baseline Trump upside Trump downside Source : Oxford Economics/Haver Analytics

18 But Australia s export markets are looking relatively sound 15% Annual percent growth in Real GDP 15% Annual percent growth in Real GDP 12% 12% 9% 9% 6% 6% 3% 3% 0% -3% -6% -9% China Japan Other Asia Pacific New Zealand Year ended December 0% -3% -6% -9% United States Germany Euro Area United Kingdom Source: BIS Oxford Economics, OECD, Consensus

19 China is hitting its growth targets $ Trillion, Real GDP (in constant PPP, $US 2008) Size of Australian economy in (in constant PPP, $US 2008) Annual change in Real GDP ($T) $4.4 trillion economy in 2000 $18.7 trillion economy in Source: BIS Oxford Economics, OECD, Consensus

20 With benefits for the services sectors of the Australian economy 12 Number of persons (in millions) $ Billion (in constant prices) 32 9 Tourism Debits (RHS) Short Term Departures (LHS) 24 Tourism Credits (RHS) 6 16 Short Term Arrivals (LHS) Education Credits (RHS) Year ended June Source: BIS Oxford Economics, ABS

21 Australian economy boosted by exports but domestic demand remains weak

22 Queensland domestic demand returning to growth following large contraction

23 But different investment cycles will keep total construction activity flat Source: BIS Oxford Economics, ABS data

24 Large labour response to resources boom, has since fallen back

25 but labour demand set to grow as new Queensland projects rolled out

26 will be challenging given rising infrastructure investment in NSW and Victoria $ Billion Total Engineering Construction Work Done WA 30 QLD NSW SA VIC Year ended June, 2016 is an estimate Source: BIS Oxford Economics, ABS NT

27 QMCA Major Projects Report Key messages Infrastructure gaps still exist Infrastructure Australia Challenge now is funding infrastructure requirements All funding alternatives should be on the table Capital recycling Debt financing City deals User pays (e.g. road pricing) Beneficiary pays (value capture) Budget reforms (sustainable funding into the future)

28 Major project work buffeted by mining and infrastructure investment cycles Mining and Heavy Industry Construction Work Done $ Billion (in constant prices), value of work done Other heavy industry Other minerals Coal Bauxite, alumina and aluminium Oil and gas Forecast Year ended June Source: BIS Oxford Economics, ABS

29 Major project work buffeted by mining and infrastructure investment cycles Public Investment - Queensland 30 $Billion Percent 10% 25 Source: BIS Oxford Economics, ABS data 9% 8% 20 7% 6% 15 5% 4% 10 3% 5 2% 1% 0 0% Other public investment excluding asset sales Public engineering construction per 10 million persons Publicly funded engineering construction Total public investment as a % of Queensland GSP (RHS)

30 Actual public investment not keeping up with budgeted investment

31 And longer term increases are needed just to cover depreciation of fixed assets

32 Population growth in Queensland will recover, adding to infrastructure demand

33 Insufficient investment in transport could realise higher congestion costs

34 NSW is now outstripping Queensland in funding transport infrastructure

35 Queensland is not keeping pace with NSW and Victoria in Transport projects $ Billion (in FY15 constant prices) Forecast Notes: This chart is based on projects with over $2 billion in construction work done. Solid areas are road projects, dotted areas are rail projects. Source: BIS Oxford Economics Year ended June Source: BIS Oxford Economics SA North-South Corridor WA Hancock Roy Hill (Pilbara) WA Fortescue Metal Group (Pilbara) WA BHP Billiton (Pilbara) WA Rio Tinto (Pilbara) VIC Inland Rail (VIC component) VIC Melbourne Metro Rail VIC Level Crossing Removal Program VIC Regional Rail Link VIC Western Distributor VIC EastLink QLD Acacia Ridge to Port of Brisbane QLD Brisbane Underground Bus and Train Project QLD Inland Rail (QLD component) QLD Warrego Highway QLD Gateway Motorway QLD Bruce Highway Upgrade QLD TransApex QLD Ipswich Motorway NSW Sydney Metro West NSW Inland Rail (NSW component) NSW Sydney Metro City & Southwest NSW Sydney Metro Northwest NSW F6 Extension NSW Western Harbour Tunnel NSW Western Sydney Infrastructure Plan NSW NorthConnex NSW WestConnex NSW Pacific Highway Upgrade

36 Not enough public funding is available to meet Queensland Pipeline projects

37 Major Projects Pipeline Recommendations Need to improve short term funding mechanisms Reconsider long term asset leasing $60bn+ in assets that could be recycled into new public infrastructure Do not rule out debt finance Commonwealth Government, particularly, has room to move Expand the number of City Deals Townsville is a good first step, more can be done Improve pace of assessment and approval of MLPs Concessional finance (NAIF) and project bonds (tapping into superannuation and sovereign wealth funds) can also help

38 Major Projects Pipeline Recommendations Longer term sustainability in infrastructure funding Genuine tax and expenditure reforms Use debt only for productive infrastructure and tax reforms to provide sustainable revenues for public project funding over time Maintain rigour with project selection Transparency in costs and benefits of projects is critical Boost construction industry efficiency and productivity In line with PC Review (2014) recommendations A partnership approach between industry and government Plan for a growing pipeline of work and how to resource it

Impacts of the Global Economy on Asia Pacific Travel. 29 June 2007 John Walker

Impacts of the Global Economy on Asia Pacific Travel 29 June 2007 John Walker jwalker@oxfordeconomics.com Oxford Economics Founded in 1981 Over 300 clients including blue chip companies and government