Powering the investment boom

Sydney’s WestConnex project. Pic: Dylan Robinson

If Australia can end the current power crisis and the vandalisation of its power networks by the rogue energy states, NSW and Victoria, we have a real chance to resume high levels of prosperity.

Australia rode on the mining investment boom and when this declined we switched to a housing construction boom. Unless there is a change in banking policy that housing construction boom now looks likely to subside, but it is set to be replaced by the long-awaited infrastructure investment boom.

I have never seen so many infrastructure projects in the detailed planning stage with NSW and Victoria leading the way. With the help of Macquarie research I will bring together the staggering investment totals we have in the pipeline.

Add power stability and investment and some reduction in the power cost (plus access to the abundant and cheap gas in Victoria and NSW) to the infrastructure boom and you turn the outlook for Australia on its head.

But unless we find a way to invest in repairing the damaged power network so our renewable generating capacity can be properly used and also invest in facilities to back up our renewable projects (including, hydro, gas and coal power station maintenance) we will miss the opportunity.

The best summary of the government’s energy plan came from one of the largest non-government industrial employers in the country, BlueScope, which operates the steelworks in Port Kembla in NSW and at Western Port in Victoria.

BlueScope’s CEO, Paul O’Malley, reflected the view of most of Australian business community when he said: “This begins to address Australia’s bizarre and needless energy crisis. It turns the game around ----where now, the effective functioning of homes, businesses, schools and hospitals is the priority.

“It retilts the playing field — so affordability and reliability needs are considered equally with environmental needs. We welcome this new approach because it’s fair.”

Imagine the favourable consequences for the nation if an energy policy that had a thought for “homes, businesses, schools and hospitals” was linked to an infrastructure boom that further lifted living standards.

According to Macquarie there is a staggering $221 billion set to be spent on infrastructure by the state and federal governments over the next four years. And it could rise to at least $323 billion as planning is undertaken on major projects that haven’t yet received full funding.

The NSW and Victorian state governments are the main drivers of this boom as they catch up on the requirements faced by higher populations. With revenues boosted by property taxes Victoria and NSW are each planning to spend $73 billion on new projects.

There is some $16.6 billion in road projects in the pipeline (WestConnex in Sydney and the Western Distributor in Melbourne are the biggest) plus $5.5 billion in rail with more on the drawing board. Water supply and sewerage are looking at greater investment and if the Turnbull-Frydenberg energy plan is implemented there will be a surge in power investment. But the infrastructure building market covers wider areas.

In social infrastructure, aged care has record levels of work in-hand ($1.8 billion), while the outlook for education and entertainment is improving from already-high levels.

And there is more to come.

ABS data shows that mining assets are now beginning to age, while the ages of assets in other industries such as utilities and manufacturing are also increasing.

Of course we need to put the looming infrastructure boom into perspective.

Mining investment has fallen from 6.3 per cent to 2 per cent of GDP, while over the same period housing has risen from 4.5 per cent to 5.6 per cent of GDP. This switch was a lifesaver, although both Western Australia and Queensland were hit hard.

Many expect housing to fall to 5 per cent of GDP over the next two years so infrastructure will be required to fill the gap. And it looks like it will deliver and if we can have sensible energy policies then get set for a much improved share market.