19WA INFRASTRUCTURE REPORT

Transcription

1 19WA INFRASTRUCTURE REPORT Civil Contractors Federation Construction Contractors Association 1

2 Bow River Bridge on the Great Northern Highway in the Kimberley region. Photo courtesy of BMD Constructions. 2 3

3 Executive summary 6 1. WA economic outlook 8 Outlook for the global economy 9 Outlook for commodity prices 11 Outlook for the Australian economy 12 Outlook for the WA economy WA infrastructure outlook 16 Recent trends and outlook for construction activity 17 State of play and outlook for infrastructure and mining construction 2 WA construction cost trends 24 Meeting the growth challenge WA major projects (project value >$5 million) 3 Civil Contractors Federation (WA Branch) 7 Verde Drive Jandakot, WA 6164 Phone: (8) ccfwa@ccfwa.com.au Web: ccfwa.com.au CCA Construction Contractors Association of Western Australia Inc Construction Contractors Association of Western Australia PO Box 46 Applecross WA ccawestaust@gmail.com Web: ccawa.com.au BIS Oxford Economics Pty Ltd Level 8, 99 Walker Street North Sydney NSW 26 Contact: Adrian Hart Associate Director Construction, Mining and Maintenance Phone: (2) Fax: (2) ahart@bisoxfordeconomics.com.au Web: bis.com.au The Construction Contractors Association of WA (CCA) is delighted to jointly sponsor this year s WA Infrastructure Report with the CCF. The CCA is the peak industry group representing the major civil and building contractors in Western Australia and together we deliver in excess of 5% of the major projects constructed in Western Australia representing in excess of $7b of turnover each year. Major projects include Optus Stadium, the Airport Gateway project, Elizabeth Quay, the new museum and all major transport and other infrastructure projects undertaken in the State. Our objective is to provide a common voice aimed at assisting the community in getting optimum value for money for the projects delivered. We aim to work collaboratively in creating a fair and safe future. In sponsoring this report we note the high levels of work looming in the near future through infrastructure projects in WA, NSW, Victoria and Queensland, new mines for the major iron ore participants, new LNG trains and finally in the defence industry and would like to work with Government to minimise the impacts of these pressures on pricing, specialist equipment availability, resource availability and effective procurement solutions. We encourage wide reading of this report and look forward to any discussion that it may generate. Peter D Moore PSM CCA CEO Welcome to the 219 WA Infrastructure Report the fourth such report produced in conjunction with Adrian Hart and his team at BIS Oxford Economics. This year we re delighted to welcome CCA on board as co-sponsor. Three years ago, Adrian noted in the first WA Infrastructure Report that the report came at a crucial time for the infrastructure construction industry, as the Western Australian economy is impacted by a collapse in resources investment whilst the State and Federal Governments grapple with debts and deficits in framing their budgets and infrastructure spending plans. The effect of that post-boom collapse sent shockwaves through the WA construction industry, and activity remains very subdued in some sectors, particularly land development. With opportunities limited in WA, many contractors have sought work in more buoyant markets, both within Australia and overseas. Now, as the WA market shows clear signs of recovery, we are already facing capacity and capability challenges. This report highlights some effective strategies that can address these challenges. By sharing ideas and working together, we can help ensure WA benefits from high-quality infrastructure that is delivered in a timely manner and provides value for taxpayers, while supporting the State Government s commendable initiatives in areas such as industry participation and training. Andy Graham CCF WA CEO November 218 Civil Contractors Federation WA. All rights reserved. This report has been prepared by Adrian Hart and Rubhen Jeya from BIS Oxford Economics. It has been prepared on the basis of publicly available information. BIS Oxford Economics has relied upon and assumed, without independent verification, the accuracy and completeness of all such information. It contains selected information and does not purport to be all-inclusive or to contain all of the information that may be relevant to the Purpose. The recipient acknowledges that circumstances may change and that this report may become outdated as a result. BIS Oxford Economics is under no obligation to update or correct this report. BIS Oxford Economics, its related bodies corporate and other affiliates, and their respective directors, employees, consultants and agents ( Oxford Economics Group ) make no representation or warranty as to the accuracy, completeness, timeliness or reliability of the contents of this report. To the maximum extent permitted by law, no member of the Oxford Economics Group accepts any liability (including, without limitation, any liability arising from fault or negligence on the part of any of them) for any loss whatsoever arising from the use of this report or its contents or otherwise arising in connection with it. This report may contain forward-looking statements, forecasts, estimates and projections. No independent third party has reviewed the reasonableness of any such statements or assumptions. No member of the Oxford Economics Group represents or warrants that such Forward Statements will be achieved or will prove to be correct. Actual future results and operations could vary materially from the Forward Statements. Similarly, no representation or warranty is made that the assumptions on which the Forward Statements are based may be reasonable. No audit, review or verification has been undertaken by the Oxford Economics Group or an independent third party of the assumptions, data, results, calculations and forecasts presented or referred to in this report. 4 5

4 This, the fourth WA Infrastructure Report, provides the latest outlook for infrastructure and mining-related construction in WA, as well as charting the challenges ahead as the WA economy transitions from the mining bust to more balanced and sustainable growth. There is positive news here for contractors and suppliers to the civil construction industry in WA: the economy is finally growing again after several years of declining State Final Demand, and engineering construction work is starting to rise once again, albeit from a weak base. Outlining where this growth is likely to be, and the sectors and projects driving the overall outcome is a key objective of this report. Apart from the analysis presented in this report, there is also a major projects list by sector, based on original BIS Oxford Economics research and assistance from the joint report sponsors, the Civil Contractors Federation WA and the Construction Contractors Association of Western Australia. With growth, however, comes challenges. To meet the growth in construction work, WA will be in keen competition with Australia s booming east coast states for skills, equipment, resources and related business services. Furthermore, the WA construction industry will need to contend with rising demands from other industries, including mining, oil and gas, and defence. With a large wave of projects unfolding across the east coast and within WA itself over the coming five years and beyond, government and industry will need to think big, be innovative and seek collaborative solutions to mitigate against potential capacity and capability risks. Here, the NSW Government s recent 1 Point Commitment to the Construction Industry provides a sound basis from which to work from. Successful negotiation of these challenges will mean that construction projects will be delivered on time, on budget and to the highest quality, providing important economic benefits and value for money for WA taxpayers. Getting it wrong will likely result in project delays, potential project and business failures (including costly litigation, rectification works as well as social costs) and, overall, higher industry cost escalation. WA needs to plan now to get the best bang for the buck in infrastructure spending. Summary Key Findings 1. Measured total construction activity in WA is still heavily affected by oil and gas construction work done. Including oil and gas, total construction work (encompassing residential building, non-residential building and engineering construction), fell nearly 3% during 216/17 before rebounding 21% in 217/18. Excluding oil and gas (which is a better measure of local construction demands) total construction work rose 5% in 217/18 - the first rise in 5 years. 2. Outside of oil and gas construction, engineering construction rose 15% in 217/18 and will rise further through to 219/2, led by transport and non-oil and gas mining and heavy industry construction. While non-oil and gas engineering construction is expected to ease marginally in the early 22s, this is more a reflection of the completion of major mining projects (particularly iron ore) and the NBN rollout, with transport-related work expected to remain on a higher plane. 3. Publicly funded infrastructure construction activity declined by 5% in 217/18 as weaker water, roads and telecommunications (NBN) work dragged down activity. While there are a number of publicly funded road projects in the medium term, a key challenge to publicly funded activity is sustaining a steady contribution to overall construction as the NBN rollout winds down sharply over 218/19 and 219/2. Here, additional revenue from a revamped GST distribution formula and larger pool may provide the funding to deliver growth in public investment. 4. Construction cost indicators are already trending higher as a consequence of sharply higher oil prices, but costs are likely to remain elevated in the medium term as the state competes for resources to support higher levels of total construction activity amidst an ongoing infrastructure boom in the east coast states. Meeting the Growth Challenge The resources investment boom was facilitated by a structural shift in the economy to service the miningresource rich states of WA and Queensland and allowed WA to capitalise on any latent construction capacity from east coast states. However, over the last few years, this situation has reversed. Resources and skills have progressively flowed out of the WA economy to service the growing infrastructure and building boom taking place on Australia s east coast. The most significant infrastructure investments undertaken by New South Wales and Victoria have focused on urban solutions to unlock greater efficiencies and productivity in Sydney and Melbourne. Combined with the Commonwealth Government s own large Infrastructure Investment Program and its equity investments in Inland Rail and Western Sydney Airport, the infrastructure construction boom along Australia s east coast is unlikely to subside anytime soon and dominates the outlook for major transport project construction nationally. On top of east coast infrastructure investment, the WA construction industry is facing rising demand pressures from mining, oil and gas and defence work. Commonwealth investment in large defence projects around Australia is targeted at boosting force capability, and is driving increased base construction activity on assets including runways, harbours, buildings and telecommunications, as well as the construction of defence equipment such as ships and armoured vehicles. Meanwhile, the private sector is also funding new projects across mining, oil and gas, renewable generation and, potentially, very strong increases in maintenance activities as the resources industry, particularly, embarks on a new wave of maintenance 2% 15% 1% 5% % -5% work on over $25 billion worth of assets (across mines, transport links and downstream processing) installed and commissioned over the past decade. The large construction and maintenance profile ahead heralds risks for all states and territories in terms of the capacity and capability of the construction industry, and its ability to deliver sustainable, value for money outcomes. While more research needs to be undertaken to quantify this risk for WA, and where supply chain risks are most likely to be concentrated (i.e. particular skills, resources and equipment) it makes sense for the WA government to consider what other states are doing to mitigate risks and ensure the long-term sustainability of the construction industry. Here, the NSW Government s 1 Point Commitment to the Construction Industry is being increasingly recognised as a best practice standard. This represents a more collaborative partnership between industry and government that, through better risk allocation, procurement approaches, and encouraging innovation and maximising industry participation, sets out to achieve long term value for money through a sustainable construction industry that is incentivised to invest in capacity and capability. As the WA construction industry strives to recover and grow in coming years, it is an approach worthy of consideration. Key Indicators Western Australia: State Final Demand, Gross State Product and Engineering Construction Activity WA Oil and Gas Work Done (RHS) WA Engineering Construction less Oil and Gas (RHS) WA SFD A%Ch WA GSP A%ch f 22f $Billion Source: BIS Oxford Economics, ABS data 6 7-1% Year ended June

5 1 Economic Outlook The WA economy is now recovering following an unprecedented boom and bust in demand driven by a massive cycle in resources investment. State Final Demand grew 1.3% in 217/18, the first growth since 214/15, while economic growth bounced back into positive territory. From here, growth is expected to strengthen but global and domestic risks remain. The WA economy is emerging from the long slump in demand, investment and construction activity. But the recovery so far is still relatively weak and is likely to remain so in 218/19. The reality is the WA economy, ever buffeted by the fortunes of the mining industry, has just been through the largest ever boom/bust cycle in resources investment. A couple of years of flat growth in demand (and albeit slightly stronger growth in Gross State Product, which includes net exports) as the WA re-absorbs surplus capacity built up during the boom and recalibrates public finances is the natural reality check to the previous cycle. Growth in investment remains the key to stronger growth in the Western Australian economy from here. Unfortunately, while the medium-term prospects for public and private investment are positive, the WA economy still faces a drag in 218/19 from only very weak growth in overall public investment, while private investment also faces headwinds from the completion of the recent LNG investment phase as well as weakness in residential, commercial and industrial building. This, in turns, impacts on construction activity (detailed in the next section), which in turn has strong multiplier impacts on the rest of the economy. Yet growth in new investment in WA faces risks and challenges. By far, it is the private sector which drives the bulk of investment in the state, and it remains heavily oriented to the mining and resources industries. In turn, the prospects for this investment falls outside the control of Australian governments and is subject to global risks. Here, the outlook remains positive in the medium term, with several large mining projects getting underway and ramping up over the next two years, while new oil and gas investment essentially, expansions of existing LNG facilities will likely support activity through the 22s. However, risks inherent in the global economic outlook are likely to keep the next resources upswing relatively restrained. While positive, there is no new boom in resources investment that will get anywhere near the previous, once in a lifetime, cycle. While much smaller than the private sector, public investment has an important role to play in boosting the productivity and competitiveness of the Western Australian economy, raising living standards, attracting population growth and stimulating employment. It is important that, while investment should naturally be lower than during the boom years, it should not fall below levels that threatens long-term productivity growth or the sustainability of existing infrastructure and business assets. The overarching challenge in raising investment, however, is ensuring the state has the requisite capacity and capability to deliver, particularly in the area of construction and mining-related skills, construction materials and access to plant and equipment. As discussed further in the next section of this report, a lot of skills were lost to WA as people moved back overseas or interstate to seek employment, while supporting industries such as equipment hire also rebalanced to service the growing demand along the Australian east coast. Meeting the investment challenge will mean opening up competition for skills and equipment with the boom states on the east coast. Here, WA has some natural advantages quality of life and lower living costs but also significant challenges given the long infrastructure investment pipeline laid out in New South Wales, Victoria and, now emerging, Queensland. The key points to Western Australia s economic outlook include: While global economic growth over calendar 218 is anticipated to have been the strongest since the GFC, it is expected to slow in coming years, presenting challenges for resource-heavy tradeexposed economies such as WA. The Australian economy, too, has also experienced its strongest growth in several years in 217/18. Again, however, the outlook is for slower growth in coming years as unsynchronised investment cycles across residential building, non-residential building and engineering construction keep growth constrained. Even so, the Australian economy is rebalancing towards more sustainable growth longer term. The two speed economy led by WA and Queensland during the resources boom had given way to a new two speed economy in New South Wales and Victoria, driven by a residential and infrastructure boom. However, over the next few years, growth will be more evenly spread as the residential boom continues to unwind and east coast infrastructure investment approaches a high, albeit sustained, peak. In WA, the economy is growing again, after a substantial collapse in demand, incomes and employment during the resources bust. However, growth is still relatively feeble and the WA economy remains a long way short of the levels of demand it saw during the resources boom. The positive news is that investment is starting to turn, which will drive growth in employment and incomes. 6% 4% 2% % -2% -4% Annual growth in Real GDP Outlook for the Global Economy The Australian and WA economies are being supported by a relatively positive global economy. Despite a number a risk factors, global economic growth over calendar 218 is anticipated to have been the strongest since the GFC. However, global growth is expected to slow in coming years, presenting challenges for resource-heavy trade-exposed economies such as WA. Global economic growth is forecast to peak at 3.8% in 218 (GDP, US dollar prices, PPP exchange rate), as developed economies move towards full employment and China continues its steady transition to a slower, more sustainable growth trajectory. Concerns over protectionism, a weak Chinese yuan, rising US interest rates, economic instability in emerging markets as monetary settings revert to more normal levels, and the growing risk of a hard Brexit present key economic risks in the short to medium term. The US economy is currently growing at its fastest pace in four years, but with capacity constraints starting to bite, growth is expected to slow as the Figure 1.1: Economic Growth by Global Region and Australia World OECD Australia Year ended December Source: BIS Oxford Economics, OECD, Consensus 8 9

6 fiscal boost from tax cuts dissipates and US interest rates rise. Chinese growth will continue to decelerate as the economy proceeds with its own structural transformation toward domestic led growth. Momentum is also expected to ease in Japan and Europe as they return to full employment. On the other hand, solid growth is expected to continue in India and most of east Asia (excluding China and Japan), which augurs well for Australian exports. Nevertheless, rising US interest rates will pose a risk for a number of emerging economies given their high levels of foreign debt and the depreciating impact of US rate rises on their currencies. Of more concern is rising protectionism in the form of tariffs imposed by the US and reciprocal responses from China and Europe. Although our current view is that the trade war will have a minimal impact on overall global growth, the downside risks have increased. Much of the risks relate to uncertainty and their effects on business and consumer confidence. Already there has been a sharp correction to commodity prices recently (with the exception of oil), and we expect the trade uncertainty to weigh on prices for the next 1-2 years. However, by the early 22s, the tightening supply-demand balance in a number of commodity markets is expected to initiate a recovery in prices, which will fuel the next round of mining investment. In the long run, demographic change is the most significant driver of the forecast slowing in world GDP growth. Similar to Australia, population growth is expected to moderate as the rate of natural increase (births deaths) falls, with some countries including Italy and Japan already seeing their populations decline. The global economy presents a number of risks to WA. With a high dependency on mining and heavy industry activity, the greatest risk to the state s economy stems from commodity price shocks and its impact on resources investment. Uncertainty surrounding the likelihood, timing and magnitude of President Trump s policy agenda are also risks to the WA economy: the US trade war with China and proposed fiscal stimulus measures especially those relating to large civil infrastructure projects both have the ability to either boost or dampen commodity demand, prices and investment Quarterly Average Prices (Log Scale) Thermal Coal (A$/t) Figure 1.2: Commodity Prices Coking Coal (A$/t) Iron Ore (A$/t) Crude Oil (Brent) (A$/bbl) Forecast As at June Source: BIS Oxford Economics, Department of Industry data New Mandurah Traffic Bridge. Photo courtesy Georgiou Group Outlook for Commodity Prices Although market sentiment remains relatively positive for the commodities industry, key risk factors such as the extent of the economic slowdown in China, escalating trade wars, and the spill-over effects of tightening US monetary policy on emerging economies is all weighing on the outlook for commodity prices. A recovery in commodity prices from the 215/16 trough has underpinned higher mining industry profits, which in turn is refuelling reinvestment in capacity and operations. Exploration activity has risen, the next round of mining projects are moving into development and sustaining capital expenditures (including maintenance works) is on the rise once more. Although US dollar denominated commodity prices have strengthened, the Australian dollar has not appreciated in sync as in previous cycles, constrained by a widening interest rate differential as the US Federal Reserve raises interest rates to a more normal monetary policy setting. Australian interest rates did not fall as far as US rates, and with inflationary pressures weak, there is no immediate pressure for the Reserve Bank of Australia to raise official rates. The upshot of this is that Australian dollar denominated commodity prices have been stronger, and more sustained. The outlook for commodity prices particularly for iron ore, coal and gas will continue to hold important ramifications for Australia s and WA s future economic performance. The medium term trajectory for commodity prices is mixed in light of the risks facing the global economy but prices are largely expected to remain above recent troughs. Volatility will remain in the short term as political and policy uncertainty lingers. While global economic growth is expected to soften gradually, the timing and magnitude of unexpected changes to policies have the potential to roil commodity markets overnight. Despite easing demand, certain commodity markets are more finely balanced than others and continue to be highly sensitive to supply side interventions particularly political and policy-related shocks. 1 11

7 Per Cent Figure 1.3: Australia Basic Economic Indicators Real GNE -2 External Contribution Contribution to Domestic Demand - Per Cent Public Investment Real GPD Public Consumption Forecast Forecast Year ended June Source: BIS Shrapnel, ABS data another positive contributor to growth in past years moves into the down phase. Although stronger growth in domestic demand boosted Australian GDP last year, the Australian economy is likely to slow again in coming years in the face of several headwinds. Housing investment is likely to fall significantly as investors withdraw from the market amidst tighter lending standards, new taxes and falling house prices. Momentum in household spending remains weak, with consumers held back by weak growth in wages and other income. Growth in non-mining investment is anticipated to slow from the very fast pace of recent years, with public investment also peaking as further increases in transport infrastructure is offset by the completion of Australia s largest single public infrastructure project the rollout of the NBN. Slower global growth has the potential to drive weaker growth in export volumes, although mining investment itself is picking up again following several fallow years. By early next decade, however, currently offsetting investment cycles across housing, social and economic infrastructure (including mining) are expected to move into upswing and gradually synchronise and broaden, although there will be differences in the strength and timing among the different components. Renewed employment growth and with the labour market tightening increasing wages, household incomes and consumer spending, will also drive stronger economic outcomes. Further improvements in Commonwealth and State Government finances (through rising tax revenues) should also provide scope for further public expenditures either via increased recurrent or capital spending or tax cuts, or more likely a combination of all three. The upshot is that growth in domestic demand should strengthen during the early 22s, while export growth should moderate as the increase in LNG exports are fully realised. While stronger domestic demand will also drive stronger imports, Australian GDP growth should average around 3% by 221/22 and 222/23. Outlook for the Australian Economy Australia s economic growth has bounced back over the past year, with GDP growth increasing to 2.9% on average through 217/18, following only 2.1% in 216/17 and an average of 2.5% over the past 6 years. The current momentum in overall growth is expected to be maintained over the next year before slowing again in 219/2. Over the next two to three years, the Australian economy will be boosted by net exports, underpinned by new LNG capacity, moderate increases in exports of other key commodities, and strong growth in services exports, led by inbound international tourism and education, which is being boosted by a more competitive dollar. The outlook for rural and manufacturing exports is also positive, with both sectors taking advantage of Australia s comparative advantage in high quality, high value-added output. A key risk is the strength of the global economy, or policy decisions by key trading partners which could impact on the export performance of key industries including mining, agriculture, manufacturing, tourism and education. Growth in Australia s GDP (and, particularly, domestic demand) has been considerably lower over the past six years than the previous two decades. The main drag has been the collapse in mining investment, which coincided with (and contributed to) weakness in nonmining business investment. Net exports has acted as a positive, partial offset during this period, due to booming resource and services exports and weak growth in import volumes. Rising public and private non-mining investment in the non-mining states where once the dollar fell, economic competitiveness increased and populations returned has also been positive for the Australian economy overall during this readjustment phase. While the last two to three years has seen a reversed two-speed economy led by New South Wales and Victoria, it is becoming apparent that the structural shift in the Australian economy back to broader-based balanced growth is now underway. Growth is now returning to the mining states of WA and Queensland as resources investment picks up once more, while growth is moderating in New South Wales and Victoria as investment cycles in infrastructure and non-residential building near their peaks and residential investment Karratha City Centre Redevelopment. Photo courtesy Downer 12 13

8 2% 15% 1% 5% % -5% -1% Figure 1.4: Key Indicators Western Australia State Final Demand, Gross State Product and Engineering Construction Activity WA Oil and Gas Work Done (RHS) WA Engineering Construction less Oil and Gas (RHS) WA SFD A%Ch WA GSP A%ch f 22f Year ended June Outlook for the Western Australian Economy The WA economy has borne most of the national decline in mining investment, which followed an unprecedented investment boom in iron ore and later LNG. The investment downturn spilled over to a range of support sectors such as business and rental services. The total economy, as measured by Gross State Product (GSP) contracted 2.9% in 216/17, and domestic demand (measured by State Final Demand or SFD) fell 7.2% and a full 14.5% over the three years to and including 216/17 in line with the sharp falls in mining investment. However, as mentioned in the 218 WA Infrastructure Report, WA is past the worst. While there are still some constraints to growth weaker consumer spending and retail turnover, and an oversupply of dwellings and commercial space established during the boom years economic growth has finally returned. The pace of the $Billion Source: BIS Oxford Economics, ABS data mining investment decline has now slowed dramatically. Excluding oil and gas, resources investment and spending is starting to rise again, led by large sustaining capital projects in iron ore and new investments in a range of metals and minerals including gold, mineral sands, rare earths and lithium. The ramp-up in LNG production is supporting growth in total economic output, which is estimated to have bounced back to 1.8% growth in 217/18, and forecast to accelerate and exceed 3% in both 218/19 and 219/2. After declining through much of 215/16 and 216/17, employment is also recovering, with the state adding 28, jobs in 217/18. The unemployment rate averaged 6.% in 217/18,.2% lower than the average of 216/17. Following 2% employment growth in 217/18, growth is expected to soften a little in 218/19, but reaccelerate in 219/2, boosted by accommodation and tourism, health care, and the arts and recreation sectors. In 217/18, 77% of WA s GSP and 79% of the state s employment was concentrated in Perth. Employment and GSP growth in Perth will continue to outpace growth in the rest of WA, due to services supporting resources and agriculture, which will be concentrated in Perth. In contrast to an expected recovery in private sector spending, however, the outlook for public sector funded spending remains mixed. Following a collapse in 214/15 and 215/16, public investment in WA has lifted around 1% over the past two years, with the key drivers being the rollout of the NBN (boosting telecoms investment), the Forrestfield Rail Link (boosting rail work) and a number of significant road projects. However, the winding down on the NBN rollout in coming years will put a drag on further growth in publicly funded work, although the outlook for transport investment (as discussed more in the next section) remains positive, as does spending on education and health buildings. Achieving stronger growth in public investment from here requires a fundamental improvement in the financial position of the WA State Government or more direct investment from the Commonwealth (or a combination of the two). Here, there may be some upside risks going forward that could drive stronger levels of public investment (although expenditure will still be subject to global economic risks). One key development is anticipated changes to the GST allocation that will see WA s share rise from the current 47 cents in the dollar to a floor above 7 cents in the dollar 1 along with extra cash injections to increase the size of the GST pool overall basically providing the state a $4.7 billion boost to revenue over eight years from 219/2. While some of this revenue will likely to be put aside to paying down high state government debt, it is likely that the remainder will be put into public infrastructure projects, including roads, rail and health facilities By 222/23, rising to 75 cents by 224/ Wright, S. (218) WA MPs queue to spend State s GST windfall, the West Australian, 25th October. However, the final resolution of the GST carve up may end up resting with whichever party is in power following the next Federal election, which needs to take place by May 219 at the latest. At time of preparing this report, the Federal Labor party was still considering its position regarding the new GST plan in particular, the size of cash injections to the GST pool although it now appears likely that whoever wins the next election, significant changes may be in store for the GST distribution formula. In any case, electioneering in the lead up to the next Federal election is likely to elicit promises of additional Federal funding to be put towards WA infrastructure. Consequently, public investment may well rise more than currently projected in forward estimates. In summary, the WA economy is strengthening again, after a substantial collapse in demand, incomes and employment during the resources bust. However, growth is still relatively feeble and the WA economy remains a long way short of the levels of demand it saw during the resources boom. The positive news is that investment is starting to turn, which will drive growth in employment and incomes. Mining investment is picking up following four successive years of decline, while public investment in transport and utilities is also on the increase. While a sustained recovery in housing investment and parts of non-residential building is still some way off, population and employment growth is starting to recover, which will start to absorb the oversupply of stock. This is the necessary first stage of recovery before a stronger investment cycle takes place in the 22s

9 Figure 2.1: Western Australia Value of Construction Work Done by Segment 2 Infrastructure Outlook 6 5 $Billion, 215/16 prices Residential Building Non-Residential Building Mining and Heavy Industry Construction 4 Civil Construction Following several years of decline, civil infrastructure work done picked up in 217/18, and is expected to remain above recent lows over the next five years. The challenge will be sustaining infrastructure and mining-related construction in the early 22s, particularly given WA s exposure to global risks and the ongoing infrastructure boom on Australia s east coast. Although the worst of the resources investment bust is now in the past, official engineering construction work done data will likely show a $16 billion or 5% decline in 218/19 on BIS Oxford Economics estimates. This will be due to an $18 billion fall in measured oil and gas construction, following the spike in 217/18 driven by the arrival of the overseas-fabricated Prelude floating offshore platform. This masks a $2 billion forecast improvement in non-oil and gas engineering construction for 218/19, led by a range of projects across mining, roads, rail, water and electricity. While setbacks are expected in the early 22s across telecoms (NBN), electricity and other minerals construction (as three large iron ore projects getting underway now eventually move to completion), a pipeline of transport projects across rail, road and harbours, along with the next phase of oil and gas should keep engineering construction activity on a plane higher than recent troughs. During the resources boom, the residential and non-residential building markets experienced strong growth as the population surged to deliver the ambitious resources investment agenda. But as resources-led activity fell, this strong growth in building construction ultimately produced an oversupply of housing and commercial office space that is currently unwinding and is still reducing demand for new building construction. While population growth is reaccelerating, it will take many years before non-residential building grows significantly again, although an uptick in residential work and associated infrastructure is closer on the horizon. Overall, the medium-term prospects for WA s economy and construction markets are positive. Transport infrastructure investment is expected to rise from here, along with a cycle in mining-related works, with residential building and related infrastructure emerging again through the early 22s as population growth returns and absorbs current excess housing stock. A key challenge, however, will be ensuring the industry has the capability (skills) and capacity to deliver while east coast infrastructure investment remains sustained at high levels. The key points can be summarised as follows: Total construction activity in WA is still heavily affected by measured oil and gas construction work done. Including oil and gas, total construction work (encompassing residential building, non-residential building and engineering construction), fell nearly 3% during 216/17 before rebounding 21% in 217/18. Excluding oil and gas, construction work rose 5% in 217/18 the first rise in 5 years. Outside of oil and gas construction, engineering construction rose 15% in 217/18 and will rise further through to 219/2, led by transport and non-oil and gas mining and heavy industry construction. While non-oil and gas engineering construction is expected to ease marginally in the early 22s, this is more a reflection of the completion of major mining projects (particularly iron ore) and the NBN rollout, with transport-related work expected to remain robust. Publicly funded infrastructure construction activity declined by 5% in 217/18 as weaker water, roads and telecommunications work dragged down activity. While there are a number of publicly funded road projects in the medium term, a key challenge to publicly funded activity is sustaining a steady contribution to overall construction as the NBN rollout winds down sharply over 218/19 and 219/ f 221f 223f As at June Construction cost indicators are already trending higher as a consequence of sharply higher oil prices, but costs are likely to remain elevated in the medium term as the state competes for resources to support higher levels of total construction activity amidst an ongoing infrastructure boom in the east coast states. Recent Trends and Outlook for Construction Activity WA s construction industry remains heavily influenced by the requirements of the mining industry. Annual construction work done steadily increased during the 2s resources boom rising to a peak of almost $6 billion, while averaging $58 billion over the four-years between 211/12 and 214/15 inclusive. Growth Source: BIS Oxford Economics ABS was overwhelmingly in mining and heavy industry construction led by oil and gas engineering work, which remained above $14 billion in seven consecutive years between 211/12 and 217/18. Booming resources investment in turn brought rapid population growth, which ultimately drove increasing demand for residential and non-residential building. Meanwhile, rising tax revenues enhanced the State and Federal Governments fiscal capacity to spend on an extensive infrastructure investment program. Total construction work done has reversed sharply since 215/16, as major projects in iron ore and oil and gas were completed. The trough is expected in 218/19 at around $27 billion, before increases in mining and heavy industry and residential building drive a recovery, albeit at much lower levels of activity when compared to the years of the mining construction boom

10 Engineering Construction The engineering construction segment can be split into mining and heavy industry construction and civil construction. The former is defined by the ABS to include the direct construction of mines, refineries, smelters, chemical plants, materials handling and storage facilities, oil refineries and platforms, blast furnaces, steel mills and other heavy industrial facilities. Civil construction, meanwhile, includes all other non-building construction including transport infrastructure (roads, bridges, railways, harbours), utilities infrastructure (electricity, water, sewerage, telecommunications and pipelines), recreation infrastructure (excluding recreation buildings such as roofed stadiums) and other (e.g. site clearing) civil construction. An analysis of WA s engineering construction split emphasises the dominance of mining and heavy industry construction over civil construction. The former is dominated by other minerals construction (mostly iron ore, but more recently also including significant lithium projects) as well as oil and gas construction (including conventional as well as LNG projects), with the latter sizeably larger and lasted longer than the other minerals construction activity. While mining and heavy industry construction consistently amounted to $26-27 billion per annum between 212/13 and 215/16 but is forecast at $8.1 billion in 218/19, the lowest since 24/5. The completion of the mega LNG projects, and the lack of projects of a similar size in the horizon will continue to overshadow the mining and heavy industry landscape in WA. While civil construction was boosted by the resources boom and elevated resource-related civil construction such as railways, harbours and pipelines, there was also strong growth in non-resources civil construction as governments used the resources boom to finance a range of infrastructure projects across roads, rail, water, telecommunications (NBN) and electricity. In the medium term, commodity prices are forecast to remain strong. However, the overwhelming need to replace depleting reserves and to maintain Australia s share of exports is expected to drive increases in other minerals construction. Indeed, in the case of iron ore producers, a number have already approved projects to commence construction in the medium term in recognition of the need to build new capacity or quality production to offset depleting reserves at existing mines. Residential Building During the resources boom WA s population grew exponentially and the rate of housing construction could not keep pace with population growth. The buildup of a significant underlying stock deficiency, low interest rates and a strong pipeline of work kept residential building work done in WA at high levels, peaking in 214/15. With the resources bust and investment downturn came sharper declines in population growth, a product of migration outflows. These factors ultimately led to a sharp downward correction in residential building, with work done declining 25% in 216/17 and a further 7% in 217/18. BIS Oxford Economics expects residential building work done is bumping along the bottom now, and while there will be little growth in 218/19, stronger population growth will help draw a mild recovery in subsequent years. Non-Residential Building In recent years, WA s non-residential building work done has been relatively less volatile when compared to residential building. The peak level of activity was reached in 211/12 at $6.1 billion, topping off 1 years of consecutive years of growth (driven by a mix of activity in commercial and industrial building, public funded education stimulus and hospital developments). Since 212/13, total non-residential building activity has declined as stimulus that funded education building was phased out and an oversupply in office markets emerged. Looking ahead, non-residential building activity is expected to remain relatively subdued in the medium term. Construction Employment Construction employment within WA was impacted particularly by weaker activity in residential building, as well as the broader civil market in the years prior to 217/18. However, with residential building stabilising, and civil construction picking up, employment is gathering new momentum. Over 217/18, average construction employment in WA increased by 4.6% to 136, a strong rebound from the 1.3% decline in employment in 216/17 from the year prior. Total employment within the construction industry is expected to oscillate in the medium term but trend higher from 22/21 onward. Thousands of Persons Figure 2.2: Western Australia Population Growth f 221f 223f Year ended June Fairway Exclusive Estate, Yanchep. Photo courtesy Densford Civil Natural Increase Overseas Migration Interstate Migration Annual Growth Rate (%) Per Cent Source: BIS Oxford Economics, ABS data 18 19

11 State of Play and Outlook for Infrastructure and Mining Construction WA s engineering construction market is heavily influenced by the privately funded investment requirements of the mining industry, which accounted for around two -thirds of work done in the past five years. Although WA has passed the steepest declines in work done resulting from the completion of large-scale projects in LNG, the overall level of engineering construction activity is not expected to return to the level seen at the height of the resources construction boom. Nonetheless, the level of privately funded engineering construction activity will remain relatively high in historical terms. Publicly funded engineering construction in WA, meanwhile, has been relatively stable since 212 typically averaging close to $3.5 billion per annum in work done. However, this masks substantial swings in public investment across several sectors, including water (such as the $1.5 billion Southern Seawater Desalination Plant), electricity (particularly high levels of transmission and distribution work to support industrial and residential users) and telecommunications (the rollout of the NBN). Looking ahead, publicly funded engineering construction is expected to shift higher, led by a range of transport, water and sewerage projects, offsetting the completion of the NBN rollout. Transport Infrastructure Transport infrastructure construction includes the construction or roads, bridges, railways and harbours, and amounted to $2.4 billion in work done during 217/18. This is down 11% from the previous year, and 8% below the peak of $12.1 billion in 212/13. The cause of the steep decline over many years is weaker resources investment, which had driven some large scale projects in harbours and rail. 217/18 is likely to be the weakest year for transport infrastructure construction, but work done is forecast to move higher from here with activity expected to average around $3.4 billion per annum over the next five years. A list of major transport projects, covering projects above $5 million, is included in the project list at the back of this report (from page 3) $Billion, 215/16 prices Harbours Railways Bridges Roads Figure 2.4: Western Australia Engineering Construction, Transport Sectors Year ended June Source: BIS Oxford Economics, ABS $Billion, 215/16 prices Privately funded Publicly funded Figure 2.3: Western Australia Engineering Construction f 22f 223f Year ended June Source: BIS Oxford Economics, ABS Roads and bridges construction includes privately funded mining access roads, subdivision developments and airport aprons and runways, on top of publicly funded road works. Road and bridge construction progressively weakened from $3.1 billion in 28/9 to $1.8 billion in 217/18 - the fourth consecutive year engineering activity for the segment has fallen below $2 billion. Publicly funded road construction has been generally steady in the $1.1-$1.2 billion per annum range over the past five years but is expected to lift to higher levels from here. Privately funded road construction is also expected to turn up from 219/2, led by the requirements of new resources investment coupled with growing residential activity. Rail construction rose for the first time since 212/13 during the last financial year but, at $463 million, remains well below the $3.7 billion resources boom peak. The outlook for rail construction is highly positive, however, with various further stages of METRONET adding to the upswing created by the Forrestfield Airport Rail Link. The construction of additional rail to support Fortescue s Eliwana iron ore development is also adding to the positive construction outlook, although not all stages of METRONET are fully funded at this stage. Harbours construction in WA fell further to just $27 million in 217/18, the lowest level of work since 22/3. However, the outlook for work is more positive, although it will not get close to the boom period levels of activity (consistently $3-6 billion per annum between 21/11 and 213/14). The largest projects in the forecast is the $12 million Onslow Marine Support Base (stage 2) and the $61 million Port Hedland Water Front Revitalisation, although there will be a range of smaller capital projects across ports servicing freight and bulk commodities trade. Utilities Infrastructure Utilities infrastructure construction includes the construction of water, sewerage, electricity and telecoms assets. Utilities construction has picked up in WA over the past two years, with telecommunications (NBN), electricity and water projects the key driver. However, the outlook for utilities construction is relatively weak as projects driving the current upswing move to completion over the next two years and are not replaced by new projects of equivalent size. 2 21

12 Figure 2.5: Western Australia Engineering Construction, Utilities Sectors Figure 2.6: Western Australia Engineering Construction, Recreation & (Non-water) Pipelines Sectors 5 4 $Billion, 215/16 prices Telecommunications Electricity Sewerage and drainage Water 5 4 $Billion, 215/16 prices Other Recreation Pipelines Year ended June Source: BIS Oxford Economics, ABS Year ended June Source: BIS Oxford Economics, ABS Electricity construction activity grew for the first year since 212/13, recording $1.5 billion worth of work in 217/18 around half the resources boom-inspired peak (primarily driven by upgrades to transmission and distribution assets, as well as mining-related generation projects). However, the completion of the current round of renewables generation projects, along with relatively subdued levels of transmission and distribution work, is expected to see electricity work retreat after 218/19. Major electricity projects included in the infrastructure outlook include: $1 million Onslow Power Infrastructure Project $15 million Badgingarra Wind Farm State Underground Power Program WA s water and sewerage construction work done was $514 million in 217/18, a little below that for 216/17 and well below the desalination-driven peak of $1.5 billion in 21/11. However, the prospects for water and sewerage construction are positive over the next three years, with combined activity set to be around $7-9 million driven by regular renewal and capital projects augmented by the following major projects: $274 million Groundwater Replenishment Scheme Stage 2 $581 million Myalup-Wellington Project $141 million Woodman Point WWTP Upgrade The construction of the National Broadband Network (NBN) has dominated activity within WA s telecommunications sub-sector in recent years, with work done surging to a peak of $1.3 billion during 216/17. However, telecoms work eased slightly in 217/18 and is expected to decline sharply over the next two years as the NBN rollout moves towards completion, offsetting further increases in privately funded telecoms work (4.5G and 5G, as well as further investment in mobile and wireless networks and towers). Telecommunications construction is expected to average around $8 million per annum over the next five years. Recreation and (Non-Water) Pipelines Infrastructure Recreation infrastructure construction has steadily declined over the past five years, from a peak of $834 million in 212/13 to $559 million in 217/18. This, in turn, reflects the completion of several major city foreshore and stadium projects as well as generally lower residential building and related construction of local facilities (i.e. parks and other recreation assets). Looking ahead, the return of stronger population growth and eventual pickup in residential building work is expected to drive a belated pickup in recreation work, but not until the early 22s. It is noted that this segment did not include, directly, the construction of the $8 million Perth Stadium (which is classified as a non-residential building project) but included some related civil works associated with its construction. Non-water pipelines infrastructure over the past five years was supported by the development of several large LNG and conventional gas projects, but the level of activity has fallen considerably in recent years. Peak work done was reached in 214/15 at $3.4 billion, but annual activity has since declined to around $4 million comparable to the levels seen in 28/9. Medium term prospects for the subsector are positive, however, as gas pipelines are developed to support the next round of gas field and LNG developments, particularly the pipelines required to transport Scarborough field gas to the proposed second Pluto LNG production train during the early to mid-22s. Mining and Heavy Industry Construction Total mining and heavy industry construction is forecast to collapse to just over $8 billion in 218/19 as the final vestiges of the previous LNG boom wash out of the ABS figures. However, this adjustment (which has little impact on domestic construction activity) masks a recovery currently taking place in non-oil and gas mining and heavy industry construction. Other minerals construction is expected to pick up over the next few quarters, gradually at first, but nearing another peak by the end of the decade as large iron ore sustaining capital projects for Rio Tinto, BHP Billiton and FMG ramp up strongly. While 22 23

13 Figure 2.7: Western Australia Engineering Construction, Mining and Heavy Industry Construction Sectors Figure 2.8: Western Australia Construction and Cost Indexes 28 $Billion, 215/16 prices Other heavy industry 7 $Billion, 215/16 prices 214/15= Other minerals (includes iron ore) Coal Bauxite, alumina and aluminium Oil and gas Non-O&G Construction (LHS) $bn O&G Construction (LHS) $bn WA Road Index (RHS) 4 Year ended June Source: BIS Oxford Economics, ABS Source: BIS Oxford Economics, ABS other minerals activity will likely fall back again upon the completion of these projects, a strong base of sustaining capital works and new developments across commodities ranging from gold, mineral sands, rare earths, lithium and nickel should keep other minerals construction well above recent lows. The start of the next round of major oil and gas projects, such as Pluto 2 / Scarborough as well as the Gorgon fourth train in the 22s will, in turn, keep total mining and heavy industry construction on a higher plane. Western Australia Construction Cost Trends Growth in construction costs tends to be highly correlated with construction activity because high levels of demand in construction activity not only places pressure on the existing supply of inputs, boosting input prices, but also allows construction companies to seek higher margins. Meanwhile, the price of key inputs such as steel and oil/oil products are determined globally and may occur independent of domestic construction activity. Figure 2.8 (p25) illustrates the strong correlation between rising construction activity and construction costs in WA during much of the 2s. The construction price data is represented by the Road and Bridge Index (RBI) from the ABS Producer Price Index series. Growth in construction prices was at its strongest during the boom phase in resources investment (24-29), with a second wave of price growth between 211 and 214. Growth in the RBI slowed substantially between 213 and 217, in line with much weaker construction volumes and a period of lower oil prices. However, the RBI (as well as other indicators of engineering construction costs, such as the ABS engineering construction implicit price deflator) has risen strongly again in 218. With little growth in margins, construction wages and falling prices for construction materials (i.e. quarry products) costs, the main driver of the growth in construction costs through 217/18 was the significant spike in oil prices, which have been magnified in Australia by the depreciating Australian dollar. While growth in oil prices may be weaker from here, there remains the risk that stronger cost pressures will re-emerge in areas where there is a rising concentration of construction work, particularly given tighter labour and equipment markets nationally as a consequence of the sharp rise in infrastructure construction work in east coast states. Meeting the Growth Challenge Unlike recent experience post the resources investment boom, the outlook presented in this report is highly positive. It shows that, based on the current major project pipeline, infrastructure and mining investment and related construction activity excluding the distortions of measured LNG construction will be rising over the next five years. Combined with eventual, later recoveries in residential and non-residential building, the total construction market in WA is expected to be significantly higher than it is today, with all the associated demands this brings for skills, construction materials, equipment and related services. In turn, the pickup in investment and construction through the next five years will drive stronger growth in the WA economy, with growth in State Final Demand accelerating to a peak of nearly 6% by the early 22s, and Gross State Product (taking into account the contribution of net exports) rising back over 4% this financial year and generally being sustained over the subsequent four years. WA is not immediately heading into a new construction boom to rival that seen during the 2s and early 21s. That boom produced considerable challenges for the construction industry and led to innovative, transformative solutions to get the work done. However, even with these solutions extensive use of FIFO workforces, outsourcing, and regional planning WA did not avoid capacity and capability issues. The consequence of this was that, although much of the pipeline of projects across infrastructure, mining and 24 25

14 building was eventually delivered, the state still had to deal with large increases in construction costs, project delays and cost blowouts, high levels of reworking, low construction industry productivity and efficiency and, in some cases, outright project failures and cancellations. East coast construction outlook Tellingly, the resources boom occurred at a time of (and, through its impact on the Australian dollar, drove) relative weakness in the key non-resource states of New South Wales and Victoria. This facilitated a structural shift in the economy to service the mining-resource rich states of WA and Queensland and allowed WA to capitalise on any latent construction capacity. However, over the last few years, this situation has reversed. Resources and skills have progressively flowed out of the WA economy to service the growing infrastructure and building boom taking place on Australia s east coast. At the height of the resources investment bust, more than 1, persons per annum were leaving the state for opportunities to work elsewhere in Australia, and mostly along the east coast as shown in Figure 2.2. While this migration of skills was known, the extent of the population shift revealed in 216 Census data (released in 217) was somewhat surprising to both industry and government. This, however, helped explain very low levels of social and residential building in WA (which is highly population dependent) and, conversely the ongoing boom in building taking place in those states where population growth was returning. On top of the east coast building boom, however, the state governments in Victoria and New South Wales were already planning for catching up infrastructure investment that had been delayed through the resources boom years including port and electricity long-term asset leases that would provide critical finance for large, generational infrastructure investments. As population growth and housing activity returned to these states post resources boom, the resultant surge in property revenues augmented the finance from the asset leases, turbocharging a long and likely sustained infrastructure cycle. In New South Wales, transport infrastructure construction surged to $11.3 billion in 217/18, already up 7% from the 214/15 trough. Given new projects such as Inland Rail, Western Sydney 1. Infrastructure Australia (216) Infrastructure Plan. Airport, Sydney Metro Stage City and Southwest, Sydney Metro West and the Western Harbour Tunnel and Beaches Link, BIS Oxford Economics is forecasting NSW transport infrastructure investment to surpass $14 billion in 222/23 alone. In Victoria, the situation is similar with transport infrastructure construction already having risen 17% since the 213/14 trough (to $7.3 billion) and, with new investments in the Melbourne Metro as well as major road projects such as the North East Link, activity will be sustained at a high level, before edging higher again in the early 22s. In Queensland, transport infrastructure spending has risen from $4.1 billion in 215/16 to $5.4 billion in 217/18 and, with further large projects across the Bruce Highway, Pacific Motorway and the Cross River Rail project, this figure is expected to rise above $7 billion in the early 22s. The most significant infrastructure investments undertaken by New South Wales and Victoria have focused on urban solutions to unlock greater efficiencies and productivity in Sydney and Melbourne, mirroring concerns from Infrastructure Australia that more investment here was required to avoid an emerging infrastructure gap 1. Combined with the Commonwealth Government s own Infrastructure Investment Program and its interest in revolutionising east coast freight links (through the $1 billion+ Inland Rail project) as well as another direct equity investment in building the Western Sydney Airport, the infrastructure construction boom along Australia s east coast is unlikely to subside anytime soon, and dominates the outlook for major transport project construction nationally as highlighted in Figure 2.9. Indeed, the peak of the major projects transport investment cycle across road and rail infrastructure is not expected until the early to mid-22s based on current projections, and the perceived slump in investment post 223/24 once current projects run their course may not eventuate if these states continue to use asset recycling strategies, debt finance, or private public partnerships to extend infrastructure investment further. Figure 2.9, for instance, does not include potential rail links to the Western Sydney Airport, nor Victoria s recent announcements of a potential $3 billion-plus development of an outer suburban rail network Figure 2.9: Australia Major Transport Projects Over $2 billion $ Billion, 215/16 prices Forecast Note: This chart is based on projects with over $2 billion in construction work done. Solid areas are road projects, dotted areas are rail projects Year ended June Source: BIS Oxford Economics Rising demands from other industries On top of east coast transport infrastructure investment, the WA construction industry is also facing rising demand pressures from mining, oil and gas and defence work. Commonwealth investment in large defence projects around Australia is targeted at boosting defence capability and is driving increased base construction activity on assets including runways, harbours, buildings and telecommunications, as well as the construction of defence equipment such as ships and armoured vehicles. 2 Meanwhile, the private sector is also funding new projects across mining, oil and gas, renewable generation and, potentially, very strong increases in maintenance activities as the resources industry, particularly, embarks on a new wave of maintenance work on over $25 billion worth of assets (across mines, transport links and downstream processing) installed and commissioned over the past decade. Rising capability and capacity risks It is in this already heated investment environment that WA will be embarking on its stronger construction program over the coming five years. While WA still retains a local pool of skills from the previous boom, it is likely that there will be increasing pressure for key in demand skill sets as infrastructure and mining-related construction rises in WA. While more research will need to be undertaken to identify WA s specific needs, various skills demand and workforce gap analyses recently undertaken for New South Wales 3, as well as the road and rail industries 4, 2. The Commonwealth Budget allowed for $36.4 billion in funding through the forward estimates, essentially targeting 2% of GDP by 22/21, in line with aspirations established in the 216 Defence White Paper. 3. BIS Oxford Economics (218) NSW Construction Delivery Assessment: Capacity and Capability, for Infrastructure NSW. SA North-South Corridor WA Forrestfield Airport Rail Link & METRON WA Hancock Roy Hill (Pilbara) WA Fortescue Metal Group (Pilbara) WA BHP Billiton (Pilbara) WA Rio Tinto (Pilbara) VIC Melbourne Airport Link VIC Inland Rail (VIC component) VIC Melbourne Metro Rail VIC Level Crossing Removal Program VIC Regional Rail Link VIC North East Link VIC Western Distributor VIC EastLink QLD Acacia Ridge to Port of Brisbane QLD Cross River Rail QLD Inland Rail (QLD component) QLD Warrego Highway QLD Gateway Motorway QLD Bruce Highway Upgrade QLD TransApex QLD Ipswich Motorway NSW Inland Rail (NSW component) NSW Sydney Metro West NSW Sydney Metro City & Southwest NSW Sydney Metro Northwest NSW F6 Extension NSW Western Harbour Tunnel/Beaches Link NSW Western Sydney Infrastructure Plan NSW NorthConnex NSW WestConnex NSW Pacific Highway Upgrade 4. See for example, BIS Oxford Economics (218) Roads Workforce Capability for Austroads, and a similar forthcoming study for the rail industry on behalf of the Australasian Railways Association

15 indicate that the greatest skills risks will revolve around key on site occupations including onsite engineers and surveyors, site supervisors and construction managers, concreters, form workers and steel fixers, mechanical and electrical trades, tunnellers and truck drivers. For certain segments such as rail, there will also be a substantial pull on skills required in manufacturing in support of local content (again, including electrical and mechanical trades) as well as longer term operations and maintenance skills as new lines are commissioned. In WA, current skills shortages lists indicate a growing need for automotive, construction and engineering trades workers, and particularly mining engineers. While apprenticeships and enrolments in trades courses are both rising in WA 5, it will take several years for this to translate to increases in competencies required to deliver new construction and mining projects. Meanwhile, the number of mining engineer enrolments has plummeted from 3 per annum to less than 5 today, according to Minerals Council of Australia figures. In both cases, the previous avenue of simply importing skills to get through the boom may not be as easy, with the Commonwealth Government increasing visa restrictions and lengthening the qualification period to attain permanent migration status. Beyond key construction skills, there is equally likely to be challenges in securing appropriate levels of construction plant and equipment at previous prices given a long phase of rebalancing stocks between Australia s west and east coasts. Securing specialist rail construction equipment may be particularly challenging, given the large volume of rail projects taking place in the east coast states. This issue is a known one, and there is evidence of increasing coordination and planning amongst east coast state governments to ensure equipment is available at a reasonable cost. Given the potentially large investment in METRONET over the next five years, the WA state government and construction industry need to ensure rail equipment availability on the next round of projects, without a large increase in costs. Meanwhile, for procurers of mining and construction projects in WA, there may also be challenges in achieving competitive, high quality, value for money outcomes if projects are not tendered to market in a way which attracts and maximises industry participation away from the east coast opportunities or alternatively makes the most of local skills and construction services providers in WA itself. Meeting the capacity and capability challenge Interestingly, these capacity and capability risks have been recognised by infrastructure agencies in NSW and Victoria. Recent work undertaken by BIS Oxford Economics for Infrastructure NSW 6, for example, points towards several strategies that could be considered by Western Australia that will help reduce risks and leave a positive legacy of infrastructure investment: The provision of a clear and coherent long term project pipeline to give industry the best possible chance of responding, rather than separate pipelines by governments and the private sector. Consider workforce development initiatives used in the east coast states (e.g. the NSW Governments Infrastructure Skills Legacy Program) that mandate participation on eligible projects by apprentices and/ or trainees and through other workforce training Develop and maintain a plan for construction materials, so that the demand and supply balance for scarce quarry products can be quantified, mapped, emerging gaps identified quickly, and strategies put into place to accelerate the development of new supply sources and related logistics where appropriate. Search continually for improvements in procurement that encourage industry participation, innovation and investment in capacity and capability. In particularly, processes should be reformed if they: ww ww ww ww ww create long term risks to industry sustainability and costs by inadvertently encouraging contractors to take risks on quality take up scarce resources through the tendering process do not provide a sustainable risk/margins balance that will encourage firms to invest in skilled staff do not encourage the participation of the full spectrum of resources across the construction industry, across all tiers, and do not encourage innovation or the use of new technologies, ranging from Building Information Modelling (BIM), new resource-saving materials or construction techniques, or appropriate skills development. The last point indicates the need for a more collaborative approach to be adopted between industry and government in the procurement of construction work, to encourage maximum participation and investment in capacity and capability; and appropriately manage risks to ensure value for money. Such approaches as embodied in the NSW Government s recently released 1 Point Commitment for the Construction Industry 7 are increasingly becoming the seen as best practice in this space. Key points of the plan include: 1. Procure and manage projects in a more collaborative way 2. Adopt partnership-based approaches to risk allocation 3. Standardise contracts and procurement methods 4. Develop and promote a transparent pipeline of projects 5. Reduce the cost of bidding 6. Establish a consistent Government policy on bid cost contributions 7. Monitor and reward high performance 8. Improve the security and timeliness of contract payments 9. Improve skills and training 1. Increase industry diversity While it remains to be seen whether the high ideals of the 1 Point Commitment effectively filter down from the executive level to the working procurement departments within government agencies, the likely risks from capability and capacity pressures over the coming five years suggests that similar plans should be considered by other state governments. A return to a rising profile of work in Western Australia is a positive development for a state that has been through a substantial boom/bust cycle over the past decade. In this environment, the Western Australian Government should be looking at what it now needs to do to achieve value for money procurement and a sustainable industry. 5. Diss, K. (218) Bidding war begins as WA once again searches for workers to fuel a mining boom, ABC News, 11/7/18, viewed 2/11/ BIS Oxford Economics (218), p NSW Government (218) NSW Government Action Plan: A ten point commitment to the construction sector, view 2/11/

16 3 (over Project Description Sponsor Region ROADS, BRIDGES and RUNWAYS $5 MILLION) Total Project Value ($m) Engineering Value ($m) Project Status Armadale Road - Duplication (Anstey Road to Tapper Road) WA Government / Federal Government Perth Under Construction 217/18 22/ Commencement Date Completion Date 217/18 Bussell Highway - Margaret River Perimeter Road WA Government South West Under Construction 217/18 218/ Mitchell Freeway - Burns Beach Road to Hester Avenue WA Government / Federal Government Perth Under Construction 215/16 218/ Reid Highway dual carrriageway - Altone to Swan West Road WA Government / Federal Government Perth 7 53 Under Procurement 218/19 22/ NorthLink WA - Central Section: Reid Highway to Ellenbrook WA Government / Federal Government Perth Under Construction 216/17 218/ NorthLink WA - Northern Section: Ellenbrook to Muchea WA Government / Federal Government Perth Under Construction 217/18 218/ NorthLink WA - Southern Section: Guildford Road to Reid Highway WA Government / Federal Government Perth Under Construction 216/17 218/ Derby - Gibb River - Wyndham Improve Formation and Gravel WA Government Kimberley 16 8 Under Construction Onslow Road Post Construction Upgrade WA Government Pilbara Under Construction 216/17 219/ Safer Roads and Bridges Program WA Government Perth Under Construction 215/16 222/ Albany Ring Road - Albany Ring Road (stages 2 and 3) WA Government / Federal Government Great Southern Credibly Proposed 221/ Kununurra Heavy Vehicle Route - Kununurra Heavy Vehicle Route Stage 1 - Road component 218/19 219/2 22/21 221/22 WA Government / Federal Government Kimberley Credibly Proposed 22/21 222/ Marble Bar Road - Coongan Gorge Realignment WA Government / Federal Government Pilbara Under Construction 217/18 22/ Perth - Bunbury Highway - Bunbury Outer Ring Road (Southern Stage) WA Government / Federal Government South West Credibly Proposed 22/ Perth Airport - New Runway Perth Airport Perth 6 54 Announced 218/19 221/ Karratha to Tom Price Road Sealing WA Government Pilbara 5 38 Announced 218/19 22/ Bussell Highway - Margaret River Perimeter Road WA Government South West Under Construction 217/18 218/ Great Northern Highway - Muchea to Wubin (Stage 2) WA Government Wheatbelt Under Construction 215/16 219/ Wanneroo Road - Joondalup Drive Grade Separation WA Government Perth 5 35 Under Construction 218/19 219/ Armadale Road - North Lake Road Bridge at Kwinana Freeway WA Government / Federal Government Perth Announced 218/19 221/ Leach Highway - Carrington St to Stirling Highway WA Government / Federal Government Perth Announced 219/2 22/ Wanneroo Road - Ocean Reef Road Grade Separation WA Government / Federal Government Perth Announced 218/19 219/ Kwinana Freeway - Roe Highway to Russell Road - Widening Northbound Lanes WA Government / Federal Government Perth Under Construction 218/19 218/19 37 Kwinana Freeway - Roe Highway to Narrow Bridge Northbound WA Government / Federal Government Perth Under Construction 218/19 22/ Murdoch Drive Connection WA Government / Federal Government Perth Under Construction 217/18 218/ Stephenson Ave Extension WA Government / Federal Government Perth 13 9 Credibly Proposed 219/2 22/ Busselton Airport Redevelopment WA Government South West 7 55 Under Construction 217/18 218/ Roe Highway and Kalamunda Road Separation Tonkin Highway - Extension: Thomas Road (Byford) to Mundijong WA Government / Federal Government WA Government / Federal Government Perth Under Procurement 219/2 22/ Perth Prospective 22/21 222/ New Lord Street WA Government / Federal Government Perth Under Construction 216/17 219/ Great Northern Highway - Wyndham Spur and Maggie s Jump Up WA Government / Federal Government Kimberley Under Construction 217/18 218/ /23 Work Done Funded Not Funded

17 Major Projects (>$5m) Project Description Sponsor Region RAIL Total Project Value ($m) Engineering Value ($m) Project Status Forrestfield Airport Rail Link WA Government Perth Under Construction 213/14 22/ Metronet: Joondalup to Yanchep WA Government Perth Under Procurement 218/19 221/ Metronet: Cockburn to Thornlie line WA Government Perth Under Procurement 218/19 221/ Metronet: Armadale to Byford WA Government Perth Credibly Proposed 219/2 221/ Metronet: Byford Extension WA Government Perth Credibly Proposed 22/21 222/ Metronet: Signalling upgrade WA Government Perth Under Procurement 218/19 221/ Commencement Date Completion Date Metronet: Denny Ave Level Crossing Removal WA Government Perth Under Procurement 218/19 219/ Metronet: Morley to Ellenbrook line WA Government Perth Credibly Proposed 219/2 221/ Eliwana Rail Fortescue Metal Group Pilbara 2 18 Under Construction 217/18 219/ HARBOURS / PORTS 217/18 218/19 219/2 22/21 221/22 222/23 Work Done Funded Not Funded Port Hedland Water Front Revitalisation WA Government / Federal Government Pilbara Announced 218/19 22/ Fremantle Port - Inner Harbour Deepening (Stage 1) WA Government / Federal Government Perth Announced 22/21 22/21 1 Fremantle Port - North Quay Berth Upgrades (Western Stage) WA Government / Federal Government Perth 74 7 Announced 219/2 219/2 5 Port Hedland - Channel Marker Replacement Program WA Government / Federal Government Pilbara 41 4 Under Construction 217/18 218/ Port Hedland - Port Improvement Rate WA Government / Federal Government Pilbara 6 6 Under Construction 217/18 218/ Port Hedland Inner Harbour Debottlnecking BHP Pilbara Credibly Proposed 222/23 13 Ocean Reef Marina WA Government / LandCorp Perth 7 4 Announced 219/2 22/ WATER Work Done Funded Not Funded 13 Stirling Dam Pumpback to Harris Dam WA Government South West Under Construction 215/16 219/ Groundwater Replenishment Scheme Stage 2 WA Government Perth Under Construction 216/17 219/ Network Renewal (Regional) WA Government Perth Under Construction 216/17 22/ Network Renewal (Metro) WA Government Perth Under Construction 216/17 22/ Ellenbrook Tank WA Government Perth 5 3 Under Construction 216/17 218/ Water for Life Irrigation projects WA Government 6 6 Announced 218/19 221/ Myalup-Wellington Project WA Government/Federal South West Under Construction 218/19 221/ Southern Forests Irrigation Scheme WA Government/Federal South West 8 6 Unlikely 218/19 22/ SEWERAGE Work Done Funded Not Funded Woodman Point WWTP Upgrade WA Government Perth Under Construction 216/17 22/ Network Renewal (Metro) WA Government Perth Under Construction 216/17 22/ Ellenbrook Barrambie Way Pressure Main WA Government Perth Under Procurement 218/19 22/ Work Done Funded Not Funded 32 33

18 Major Projects (>$5m) Project Description Sponsor Region ELECTRICITY Total Project Value ($m) Engineering Value ($m) Project Status State Underground Power Program Western Power Perth Under Construction 217/18 22/ Commencement Date Completion Date Kwinana Waste to Energy Project (35 MW) Phoenix Energy Perth 4 24 Credibly Proposed 217/18 219/ Manjimup Biomass Project (4 MW) WestGen / National Power South West 15 9 Credibly Proposed 218/19 219/ /18 Cunderdin Solar Farm (1 MW) Sun Brilliance Wheatbelt Under Construction 217/18 218/ Onslow Power Infrastructure Project Horizon Power Pilbara 2 1 Under Construction 218/19 219/2 5 5 Badgingarra wind farm APA Wheatbelt Under Construction 218/19 219/ Ceto 6 Albany Project Carnegie Wave Energy/ WA Government 218/19 South West 5 25 Announced 219/2 219/2 25 Greenough River Solar Farm Verve Energy/GE Gascoyne 6 6 Under Construction 217/18 217/18 6 Merredin Solar Farm Stellata Energy/Ingenious Wheatbelt Under Construction 218/19 219/2 1 6 Byford Solar Farm (3 MW) Wesfarmers Energy Perth 7 7 Under Construction 217/18 218/ Emu Downs Solar Farm APA Wheatbelt 47 5 Under Construction 217/18 217/18 2 TELECOMMUNICATIONS 219/2 22/21 221/22 222/23 Work Done Funded Not Funded National Broadband Network Federal Government Under Construction 22/ Oil & Gas NWS Greater Western Flank - Phase 2 North West Shelf Consortium Pilbara Under Construction 216/17 218/ Persephone gas field North West Shelf Consortium Pilbara 12 6 Under Construction 214/15 217/18 5 Work Done Funded Not Funded Lambert Deep West North West Shelf Consortium Pilbara Credibly Proposed 22/ Gorgon Stage 2 Chevron/Texaco JV Pilbara Under Procurement 219/ Gorgon LNG - 4th Train Chevron/Texaco JV Pilbara Announced 219/ Greater Enfield Woodside / Mitsui Pilbara Under Construction 216/17 218/ Pluto LNG Project (Stage 2) Woodside Pilbara 1 1 Prospective 222/23 3 Prelude FLNG Shell Kimberley Under Construction 213/14 217/ Wheatstone LNG - Gas field development Wheatstone LNG - 8.9Mtpa + Domestic gas processing facility Bauxite, Alumina & Aluminium Chevron/Apache/KUFPEC/Tokyo electric Chevron/Apache/KUFPEC/Tokyo electric Pilbara Under Construction 211/12 217/18 5 Pilbara Under Construction 212/13 217/18 3 Work Done Funded Not Funded Fortuna Project Bauxite Resources Wheatbelt Credibly Proposed 22/21 222/ Work Done Funded Not Funded

19 Major Projects (>$5m) Project Description Sponsor Region Total Project Value ($m) Engineering Value ($m) Other Minerals Boddington Expansion Newmont Peel Under Construction 215./16 217/18 75 Bullabulling Bullabulling Gold Goldfields-Esperance Under Construction 217/18 219/ Greenbushes Lithium (mine) Talison Lithium & Albemarle South West Under Construction 216/17 219/ Corporation Gruyere Project Gold Road Resources and Gold Goldfields-Esperance Under Construction 216/17 218/ Fields Gwalia Extension Project St Barbara Goldfields-Esperance 1 8 Under Procurement 217/18 218/ Mt Morgans Gold Project Dacian Gold Goldfields-Esperance Under Construction 216/17 217/18 5 Wiluna uranium project (Centipede - Lake Way) Toro Energy Mid West 3 24 Under Procurement 218/19 22/ Thunderbird Mineral Sands Sheffield Resources Kimberley Credibly Proposed 218/19 22/ Eliwana Iron Ore Mine Fortescue Metals Group Pilbara Credibly Proposed 217/18 219/ Jimblebar expansion and debottlenecking BHP Billiton Pilbara 4 4 Under Construction 216/17 218/ Mt Gibson Range Mine Operations - Iron Hill Deposits Mount Gibson Mining Ltd Mid West Under Construction 216/17 218/ Silvergrass Rio Tinto Pilbara Under Construction 216/17 217/ Koodaideri Rio Tinto Pilbara Under Procurement 218/19 22/ South Flank BHP Billiton Pilbara Under Construction 218/19 221/ Monty copper-gold project Sandfire Resources Mid West Under Construction 217/18 218/ Admiral Bay zinc project Metalicity Kimberley 1 8 Announced 22/ Pilgangoora Lithium-Tantalum Project Pilbara Minerals Pilbara Under Construction 216/17 217/18 21 Ashburton Salt project K+S Australia Pilbara Announced 22/21 222/ Browns Range Northern Minerals Gascoyne Under Construction 217/18 217/18 4 Yandicoogina Oxbow Rio Tinto Pilbara Under Construction 216/17 217/18 21 Sorby Hills KBL Mining Kimberley 7 53 Under Construction 217/18 218/ Project Maverick Brockman Resources Pilbara 6 54 Under Procurement 217/18 217/18 54 Dalgaranga Gascoyne Resources Murchison Under Construction 216/17 217/18 45 North Perth Basin Project (Boonanarring, Atlas) Image Resources Wheatbelt Under Construction 217/18 217/18 45 Koolan Island redevelopment Mount Gibson Iron Kimberley Under Construction 217/18 218/ Jinidi Mine BHP Billiton Pilbara 5 4 Prospective 222/23 55 Solomon Hub - Detrital Processing Plant Fortescue Metals Group Pilbara Prospective 222/23 222/ Comet Vale Project Orminex Goldfields-Esperance 75 6 Under Construction 217/18 218/ Glenburgh Gascoyne Resources Gascoyne 6 45 Prospective 222/23 23 Karlawinda Capricorn Metals Pilbara Under Procurement 218/19 218/19 6 Mt Windarra (Phase 1) Poseidon Nickel Goldfields-Esperance Prospective 222/23 13 Yangibana Hastings Technology Metals Gascoyne Under Procurement 219/2 221/ Cataby Mineral Sands Iluka Resources South West Under Construction 217/18 218/ Wodgina Lithium Project Mineral Resources Pilbara Under Procurement 219/2 221/ Pilgangoora Lithium Altura Pilbara Under Construction 216/17 217/18 73 Earl Grey Lithium Project Kidman Resources Wheatbelt 2 18 Under Procurement 218/19 22/ Kwinana (processing plant) (Phase 1&2) Tianqi Lithium South West 2 14 Under Construction 216/17 219/ Windimurra Vanadium Project Restart Atlantic Geraldton Under Procurement 218/19 218/19 98 Work Done Funded Not Funded Work Done TOTAL MAJOR PROJECTS Funded Not Funded Project Status Commencement Date Completion Date 217/18 218/19 219/2 22/21 221/22 222/

20 Optus Stadium. Photo courtesy Multiplex 38 39

21 4 219 WA Infrastructure Report