McKinsey: Australia’s Infrastructure Innovation Imperative

McKinsey discusses its 2019 report.

In September 2019 McKinsey published a report entitled Australia’s Infrastructure Innovation Imperative. It describes Australia as “among the most advanced economies globally in effective collaboration between the public and private sectors to deliver transport, energy and social infrastructure. It has also become a leader in private infrastructure investment […]. The country spent around 1,177 AUD per capita on transport infrastructure in 2017, ranking second among Organisation for Economic Co-operation and Development countries [after Norway].”

Railway-News spoke to two of the report’s authors, Ishaan Nangia, Partner, McKinsey, who is based in Melbourne, and Steve Joseph, Associate Partner, McKinsey, who is based in Sydney, about their findings.

Railway-News: What is the significance of rail within the current Australian infrastructure context?

Ishaan Nangia McKinsey

Ishaan Nangia

Ishaan Nangia: “Over the past 15 to 20 years, Australia has been undertaking a significant public infrastructure programme, and there is approximately A$200bn more in the pipeline ahead.

“In particular, the programme has included public rail and metro ‘mega-projects’ to build capacity to meet population growth and modernise legacy rail networks in our major cities, including the $40bn+ Sydney Metro project, the $3bn Sydney Light Rail project, the $10bn+ Melbourne Metro project and the $3bn+ Cross River Rail project in Brisbane. Added to this is the $10bn Inland Rail project (Melbourne to Brisbane) to significantly increase freight rail capacity.

“Rail accounts for a large proportion of total major project spend. In some states it’s well over 50%. Recent rail projects tend to drive attraction of market entrants and global expertise, development of the financing models and risk allocation, and evolution of new project techniques and innovations.”

McKinsey graphRN: How do rail investments / projects differ from the other infrastructure segments?

Steve Joseph McKinsey

Steve Joseph

Steve Joseph: “Compared to road and social infrastructure projects, rail projects tend to have:

  • more construction and operating interfaces
  • more contractual interfaces (government vs operator vs contractor vs rolling stock provider vs systems provider etc.)
  • a higher degree of operational and system complexity
  • a high degree of safety and regulatory requirements

“And, ‘mega-projects’ often involve major tunnelling (as dedicated corridors no longer exist for network expansion).”

RN: Are there aspects of rail infrastructure projects in Australia that are doing particularly well, which others could learn from?

Ishaan Nangia: “As detailed in our recent report, we believe there are significant opportunities for innovation in rail and in other infrastructure sectors. These include the way that rail infrastructure projects are prioritised, planned, designed and delivered.

“Notwithstanding this, Australia generally performs well on a number of aspects of major rail project delivery, including:

  • completion of a detailed Environmental Impact Assessment process combined with the granting of special planning powers in relation to major projects, to enable construction to start expeditiously whilst still dealing with community and stakeholder concerns
  • significant risk transfer to the contractor to enable innovation from the private sector and managing of risks
  • high degree of safety performance in construction and operations
  • establishment of project offices / project authorities (with a level of separation from the relevant government transport department) to enable better accountability and resourcing.”

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