07 November 2016 | 11:04
Sandra Misic

Megaprojects in Australia

Infrastructure has a central role in the development of an emerging economy or sustenance of a mature economy. Australia’s robust economy, growing trade and changing demographics are some of the factors driving demand for better and modern infrastructure. There is a persistent need in the country to invest in new infrastructure as well on maintenance and improvement of existing stock. Australia has set out USD 43.9 Billion for Greenfield and Brownfield Infrastructure Programmes – Research and Markets. Under the Australia Government’s Economic Action Strategy that plans to boost the country’s economic stance, Australia is likely to generate bigger opportunities in the infrastructure industry. Also, Australia’s infrastructure industry is undergoing many changes. Country has majority of infrastructure asset backed by the Government until recently when privatization happens to be the next plan of action. According to the results of KPMG′s 2015 Global Construction Survey, Australian projects compare favourably with the world′s best in terms of projects delivery processes.

But, for instance, there was a lot of noise in the media about Wheatstone LNG project in Western Australia, famous for a cost of more than $200bn that will hit budget or schedule . The overruns for this megaproject have been blamed on labour costs, a high dollar for most of the construction period, complex regulatory processes and lack of industry co-operation. Important questions can turn up with arguments. Australian PPPs perform poorly because of absence of the key governance features: structures are not independent (regulator/promoter) and demand risk was private (now being transferred to public). The complication is that these complex projects have low success rates (international estimates are in the order of 1/1000 for economic success, with Australia’s experience less than 50%, based on budget and schedule). The value at risk for Australia is in the order of 20% or greater than $60 billion based on conservative estimates of pipeline and success rates. So the imperative to better manage these projects is high. David Saxelby (Australian Constructors Association) and Malcolm Dunn (Australian Constructors Association) conducted the most comprehensive set of survey data on Australian mega-projects completed to date. The survey covered 44 mega-projects (> $1 billion each) worth nearly $44 billion). These projects were complex and costly but they were well managed and met all of the performance hurdles in terms of social engagement and impact and economic success for venture partners, as well as sustainability and safety. In their annual report, Scott Elaurant and Jennie Louise gave the list of Australian megaprojects. Their database consists of 38 projects, built from1992 to 2015, with the cost from $200 million to $5300 million. Recent Australian PPPs compared to European Megaprojects:

  • Cost risks well controlled,
  • Demand risk for PPPs worse than for non-PPPs,
  • Margin of demand risk difference (44%) statistically significant,
  • Poor forecasting accuracy for PPPs persistent over time,
  • 7 of 16 PPPs bankrupt (44%), including 5 of 8 tunnels (62%),
  • PPPs also highest unit cost, suggesting over-estimation of demand has led to over-scoping.

As a conclusion, Australian projects compared well on a global scale in terms of budget and schedule performance, sophistication of management controls, reporting from contractors and risk management. The Australian Institute for Project Management (AIPM)  is essential driver of developing profession of project management in the country. In the previous blog post you can read more about projects and project management in Australia. IPMA has an interest group which is dealing with megaprojects and that can provide access to the international megaproject community. First IPMA Megaprojects SIG was held last year in Croatia. The SIG showed key points of research done so far in megaprojects, and this blog post explored best practices in IPMA member association: Australia. How do you manage megaprojects in your country?

Written by
Sandra Misic

Sandra currently works as Assistant to the IPMA President and Executive Director. Since joining IPMA in 2012, Sandra worked in FMCG sector for Procter&Gamble. She holds Master in Economics from Faculty of Economics and Business, University of Zagreb. After graduation she continued at the same University the doctoral programme in Business Economics. Her particular research interest is behavioral economics.

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