Welcome to the December/Birak—'season of the young’ 2019 newsletter that shares unique and original commentary on WA infrastructure. In this edition:

Clean Energy Council conference L to R Sally Torgoman, Zoe von Batenburg, Cameron Edwards, Ritika Chopra and Peter Ross.

From the Terrace: A Local Perspective

We are delighted to share some of the intriguing developments in the local infrastructure industry. Amongst other specific commentary, the general theme of this newsletter is remote power generation, stand-alone power systems, microgrids and how they are used. The long development of the required technologies, reduced product pricing and overcoming natural risk aversion in the energy sector, have reached a point where the worldwide transformation of how energy is generated, stored and used is rapidly accelerating. This transformation will have global ramifications and due to a variety of local factors and conditions, Australian firms initially have competitive advantages and related challenges. On one side, the costs of energy should decrease across the entire community while reliability, local transmission resilience and access should improve. On the other side, large utilities with high fixed costs will be increasingly challenged on pricing and service. As we are seeing, government policy, legislation and regulations are in the process of being adapted for these challenges, at least in SA and WA. A consequence of these changes are the increasing penetration of renewables are causing issues in the grid where the Australia Energy Market Operator now wants to ‘spill’ excess renewables to protect grid operations (more on this little chestnut later). In addition, this is an opportunity for the WA state government to make some money, even export dollars! Horizon Power and Western Power are recognised leaders in remote power generation, microgrids and stand-alone power systems however, their focus is restricted to within WA. To my knowledge (and I have asked) this valuable intellectual property, equipment and experience is not being used in projects outside WA. The opportunity is to monetarise this value not only in the rest of Australia but more importantly Africa and Asia. When water and communications are linked the market is large, very, very large. For instance our work with the Asian Development Bank has identified over 200,000 suitable projects in only 18 countries. The question is, how can this additional value be captured?

So, let’s dive into some of the key talking points we have been dealing with over the last couple of months while shining some light (LED of course) on future developments. Best wishes for the summer solstice on Sunday 22nd December and the related festive period.

1 Lithium blues Don’t worry about it. When you have one dominant player (China) of course the market is not free (are they ever) and will be skewed towards their long term strategy. China’s strategy is well documented and we predicted some time ago this would happen. The demand forecast for lithium products in the coming years is so massive that prices will go up again however, the majority of the gains will go to downstream processing companies. From our perspective, China has already won the electric vehicle industry competition, although batteries will likely be only one portion of the energy propulsion mix. Batteries are not the endgame, they are a portion of the market – but it is not a free market. For some reason some Western democracies are assuming that the past will be the same as the future however, these are very different market mechanics compared to the last 70 years. It seems that the key weakness is the limited time between elections to design and implement appropriate strategic plans in this sector. From our understanding of the market, research objectives should not be about improving existing battery technology (China is all over this) but should be focussing on new battery storage technologies. That is where the real value is and where society wants to develop jobs. There are many different types of energy storage technologies including: • mechanical (gravity, hydro, compressed air, fly wheels etc) • thermal (molten salt, waxes, water, concrete etc) • chemical (lithium, hydrogen, ammonia, lead/acid, nickel–cadmium etc) Each have positives and negatives (no pun intended) however, lithium-ion (li-ion) batteries have recently begun leading the field from both a technical and a cost perspective. Over the last eight years the price of a li-ion battery has fallen by approximately 85% and further price declines are likely as production ramps up and chemical mixes and unit configurations continue to improve. Grid-scale batteries are now being deployed in several parts of the world and this is a trend that is likely to grow in the decades ahead. Off-grid electricity demand in Australia is predominantly driven by demand in the mining sector with smaller additional demand from rural communities which has grown progressively in recent years. This entire industry to rapidly transforming with Australia being a world leader.

2 China Belt and Road Initiative The Belt and Road Initiative (BRI) was launched only 6 years ago in 2013 however, its impact has been immense. Since then 136 countries and 30 international organisations have signed BRI cooperation agreements and received over USD 90 billion in Chinese Foreign Direct Investment (FDI) while exchanging over USD 6 trillion in trade with China. President Xi Jinping has described the BRI as the ‘Project of the Century’ although there has been much discussion about the motivation and long term strategy. Despite criticism from various organisations, countries and communities, there has been significant social and economic impacts that would not have been achieved without the BRI projects.

Adam Handley moderating discussion at the BRI forum

The participants in the BRI panel.

At a recent lunch of the Australia China Business Council in Perth, the general feeling was that the political environment between Australia and China was jeopardising tens of billions of dollars of domestic and international infrastructure projects that Australian companies could be part of. Ambassador Qi Zhenhong from the China Institute of International Studies shared many of the compelling benefits of the BRI. A proposal from the lunch was to establish industry round tables in 2020 to further enhance the existing relationships with China and increase Australian involvement in the BRI. The discussion was impressively mediated by Adam Handley (Partner – Minter Ellison) who asked many insightful questions and highlighted key challenges for Australian engagement with BRI projects.

3 The trilemma of power In our interview with Brian Innes, we discuss the trilemma of power, that is, how to achieve cheaper, cleaner power with existing or better reliability. A recent Energy Networks Australia report stated that existing regulations need to be updated for multi-directional grid networks, standalone power systems and microgrids. What is important is that the governments haven’t just selected middle aged electrical engineers (male and female) with decades of experience in power systems. This requires a new way of thinking and being open to lessons from around the world. I’ve been pleasantly surprised by the calibre of the people, many of them women, I have spoken to who are directly involved with formulating these new regulations and how the energy sector will be transformed. As I publicly stated during my Clean Energy Forum speech this year, it is night and day from a couple of years ago, when there was fierce resistance within power company operational teams about developing projects in this new sector. It should be remembered that Western Power and Horizon have been leading the way for well over ten years in this sector and the developments around Esperance, Kalbarri and Onslow are world leading. WA’s unique operating and regulatory environment presents significant challenges that also provide the opportunity to become a world leader in this area. There is no question it is happening with or without government and, as Abraham Lincoln and Peter Drucker said, “the best way to predict the future is to create it”. The opportunity is there for the WA government to go “all in” in not only championing this energy transformation domestically but exporting this knowledge, equipment, systems, software, remote maintenance etc. around the world. This has the potential to create tens of thousands of new sustainable jobs. Implementation of microgrids can assist towards transitioning to renewable power, industrial energy assurance, and relieving global energy poverty. The emergence of this technology presents significant opportunities for WA to become a world leader in this space. This could provide economic growth, through purposeful cross-sector collaboration across the global microgrid value chain. Nevertheless, we need to ensure collaboration between private and public power providers and enable regulation to keep pace with change. A recent ABC news article recently said the Audrey Ziberlman (CEO & MD of the Australian Energy Market Operator (AEMO)) wants the ability to control households’ solar power input to avoid grid overloading and potential power cuts. Putting in batteries would achieve the same outcome while not wasting this green energy, while at the same time improving grid resilience and voltage management. Is installing in smart inverters to spill excess green power to protect black fossil fuel generation really the way of the future? This has become a significant problem in WA where in the South West, approximately one third of households have solar panels. Solar capacity is over 1,000 MW and growing by about 200 MW per year. Muja’s capacity is 854 MW and yes, the authorities have done the maths. The first question is what do they do about it and secondly how can this be turned into a positive industry in the future? Fighting a losing battle, which AEMO seems to be proposing, is wasteful and short-sighted. Big utility grade batteries are one option. Household batteries and smart inverters are others. Why not embrace the transition and export the benefits elsewhere? From our interaction with Western Power, the agency has been very proactive in their approach and we should be thankful Western Power was not privatised. This is an area where commercial opportunity can outweigh benefits to the community, as the Eastern States are finding out to their cost. A friend suggested we should be ‘shorting’ utilities as the energy monopolies are being eroded and their business model and cost base is being undermined by new technologies and business models. Something for the Christmas BBQ discussion…

4 Speculation on WA new energy tariffs – above normal forecasts - 2020

One of the big topics discussed at the recent Clean Energy Forum in WA was speculation over the new energy tariffs (above existing forecasts) that will be released in 2020. The Australian Energy Market Commission (AEMC) recently forecast that power prices on the east coast will decrease by an average $97 over the next three years, while in WA power prices are expected to rise $102 or 6%.

Discussions revolved around: 1) How could tariffs go up when solar and battery pricing continue to go down? Isn't this increasing the incentives to opt out saving the connection fees? 2) Fixed pricing no longer works and a dynamic pricing model needs to be implemented. Do the systems exist for this? 3) Customers now have reliable, low cost alternatives and no longer need to rely on a closed market operator. The monopoly environment is being undermined. 4) Synergy is making great strides towards improving customer service, but it is the fixed costs where the arterial bleeding is. Stemming this bleeding without major restructuring and reform (coming up to an election) is......difficult. Costs would need to be reduced by an estimated 30-40%. 5) Apart from increasing tariffs, does Synergy have potential new major sources of revenue? 6) Current residential pricing is 28 cents per kW and increasing above CPI. This needs to be 10-15 cents per kW to be competitive going forward. How can this be achieved? 7) Does Synergy need a new business model? Of course, there are no clear answers at this stage however, everyone agreed energy generation and distribution is rapidly transforming the market and there will be winners and losers. Who are the winners and losers? It is also happening a lot faster than was being predicted only a couple of years ago and it could be argued that WA has already passed the tipping point.

5 Microgrid batteries and economics A microgrid is a small-scale power grid and can operate independently or connected to the main electricity grid. A renewable energy microgrid can draw electricity via different energy sources including solar, wave and wind power. They can also contain battery storage capabilities and a backup generator. Microgrids such as the Onslow microgrid, have the capacity to provide electricity for a whole community. Microgrids can also be distinguished from stand-alone power systems by potentially having multiple load and generation sources, potentially owned or operated by many parties, within an electrical boundary. Stand-alone power systems (SPS) are usually intended for individual users such as mines, farmers, industry or households.

Minister Johnston at Magellan in front of the Western Power stand-alone power systems – Nov 2019. Note : InfraNomics has a commercial relationship with Magellan. Magellan Power delivers stand-alone power systems to Western Power. Western Power is a world leader in stand-alone power systems. For the project, Magellan Power manufactured AS4777 compliant 10 kVA, 25 kWh Stand-Alone Power Systems comprising of bi-directional inverters, lithium battery modules and microgrids - all Australian designed and made by local engineers and assemblers. WA Minister for Mines and Petroleum; Energy & Industrial Relations Bill Johnston said “It’s wonderful to see local companies like Magellan working in this field. We are lucky have some of the world’s leading technology developers of Stand-Alone Power systems here in WA, which is very heartening to see.” Masoud Abshar, Managing Director of Magellan Power, said the project highlights Australian capabilities to design and manufacture world leading renewable energy technologies of Pilbara quality products. Great to see the WA Government, and in particular Minister Johnston, recognising the contribution of Western Australian manufacturers. Well done to Magellan Power for leading the way in this important industry where Australian companies are world champions in remote power supply. Important points to consider when selecting batteries for a microgrid or stand-alone power systems: Batteries are central to balancing and maintaining a reliable microgrid with stable voltage and frequencies. When considering batteries there are many other variables that need to be considered apart from cost, in particular: • Local servicing support • Specifications and certification for local conditions (Pilbara Quality). Operating in extreme conditions (heat, cold, salt, dust, wet etc) • Warranties • Integration with generation and usage • Reliability • Efficiency of the software and power smoothing tools to reduce wear and tear on other generation • Efficient charging and discharging of batteries to maximise the life of the batteries • Upgrading options • Battery cell management • Energy shifting • Reduced grid charges • Higher renewables usage

Source : WA State Government – Energy Policy Transformation Strategy September 2019 Both microgrids and SPS are designed to provide reliable energy where they: • Are located where grid network access is not available • Replace grid connected power as an alternative to traditional poles and wires • Provide a cheaper alternative to existing power supplies • Increase power reliability • Improve sustainability, reducing emissions, noise and pollution. • Can also be used for buildings, integrated developments (White Gum Valley – Fremantle) or high-rise.

Diesel generation is no longer the most economic and should be replaced with a hybrid solution including solar and batteries. Battery Energy Storage Systems (BESS) + solar + traditional generation (fossil fuel) + grid connection (if possible) is the lowest cost, lowest emissions and most reliable energy solution for most environments. According to ABB’s Microgrid for Commercial and Industrial (C&I) sites presentation from 2017, microgrids can reduce fossil fuel consumption by 45%. Although each project and location needs to be reviewed on its own merits, developments since 2017 and the Australian environment show that fuel consumption savings are now closer to 70% and increasing. Based on our recent projects, energy costs are between 10-15 cents per kW. This is dependent on the configuration and equipment used over the project life.

6 Brian Innes Interview 29 November 2019 Note : InfraNomics has no commercial relationship with Starling Capital or Plico currently or in the past. The questions and answers are independent and unfiltered. Apart from being a transformational business model, consider what operational options are available in the future once a critical mass of customers have signed up.

For the layman can you tell us about Plico Energy? We are building an energy company and everyone is invited. The essence of Plico is that everyone who joins not only will receive a system that includes 6.6 kW of Solar Panels and a 7.2 kW (LiFePo4) battery and software, they will also receive full service and become a part owner in the company. At the end of 10 years the initial investors exit and the assets revert to the community of owners. It will be built unit by unit and will progressively take over the grid until it is the major energy company doing things that only energy companies can do. Major energy companies control ancillary services, help the grid with voltage, frequency, capacity problems and things that households could never do by themselves. Collectively, as part of an energy company, we can do this.You say Plico is an energy company however those are pretty common. Synergy is an energy company, how do you differ from Synergy? Synergy is an energy company that we all own that loses money. Plico is an energy company that we will all own that immediately makes money for the individual. Plico is an energy company that is focused on the customer and helping the customer/ household get the best utilisation of their assets to reduce their costs. Plico is not trying to sell energy, Plico provides a service so households can use their own energy in a better way, generate more of their own energy and make money from this energy.Why hasn’t this happened before? I think it has taken a combination of getting to this price point of $36.50 per week that required reductions in the capital costs to convince infrastructure investors that this is the way of the future. To find a way to use smart software and embracing the local hearts and minds through the local engagement program we have been running over the last year.Has Plico been a technology, finance or political breakthrough? We would describe ourselves as a business model innovation more than anything else. Plico has taken lots of existing technology and finance and combined them in an innovative way to create a new business model. Plico has struggled to convince some investors and government agencies as they have expected to see a new technical widget. By that definition, Ikea and McDonalds wouldn’t have received money either.Many people say your product is transformational in the energy sector, why is that? Everyone in energy talks about the trilemma. Plico delivers energy cheaper, cleaner and more reliably than ever before. Plico can offer over 50% savings over 20 years compared to what customers are currently paying. Fully serviced, fully managed, full support, no headaches to worry about. It is over 90% clean energy as it is roof solar and a battery system. Plico also offers a backup circuit so that if the grid goes down, their lights stay on, so it is more reliable service. Solving the trilemma is transformational.Why did it happen in WA and not somewhere else? Being a proud Sandgroper born and raised, I have to check myself now and again to ensure I’m not being biased. The main thing about WA is that it is the smallest most sophisticated grid on the planet. Yet WA has all of the big grid problems. WA has a very low density grid that costs a lot money. WA has amazing solar and wind resources and a coal resource problem that is transitioning. WA has all sorts of balancing issues because WA is effectively a small 2 GW microgrid. It is a tiny grid from world scale, so WA is coming up against the solar penetration limits already. We know that the Horizon grids have already reached those limits and parts of the WA grid (SWIS) are close to it. For instance in Baldivis they are saying there is already too much uncontrolled rooftop solar. So in order for a Virtual Power Plant (VPP) to really prosper you have to go and find where the problems are. People will pay to solve a problem. WA has more problems than most places so this is the best location to learn and develop. Also companies have been coming to WA for years to test products because no one is watching. WA is a really good place to develop this technology. If Plico has some hiccups, it is possible to recover and build a successful business. WA is a great place to innovate and international investors recognise this too. If you look at the high solar penetration on the grids around the world, like California, they have their own problems and even more problems now with a bankrupt network. There are parts of Europe with higher distributed generation, particularly Germany leading the way. However, they don’t have anywhere near the solar resource we have and they have a massive winter heating load problem which WA doesn’t have. The places we can solve these problems (about VPPs) quickly (years not decades) are going to the economies that have climates like Perth, like California, Portugal and hopefully Africa. Especially in Africa where we hope they never have to build a transmission line again.In your words, what is a Virtual Power Plant (VPP)? At an individual level a VPP provides a user with clean energy reliably. The system will provide them over 90% clean energy, greater control over their energy, more information than they have ever seen, and make better use of their energy at the same time. A VPP allows the collective to tap into the large scale energy value streams that a household cannot get access to by themselves. Plico is very clear that there are certain things it can’t do because of the regulatory environment. What households get is a team of energy specialists trying to maximise the value of the energy they produce (as opposed to being a captive customer). There are benefits of being part of a collective which aren’t possible as individuals. Examples such as stabilising voltage, frequency control (subject to regulatory hurdles) can assist immediately with Synergy’s capacity problems - particularly around their notional wholesale capacity liabilities. We want to do a deal with Synergy and hopefully one day with AEMO. When there are thousands of Plico Members in our VPP with MWs of capacity then we can organise a good deal. When you’re trying to sell 3 kW of extra capacity in a peer to peer trade it isn’t a particularly good contract, and you are going to lose all the value in the transaction costs.How is Plico impacting the regulatory environment? We are 100% committed to focusing on areas not constrained by regulation. Plico is not reliant on regulatory change. Relying on a regulatory change for the business model is a recipe for disaster. We see Western Power as the long term strategic partner as this is a way to deal with Western Power’s low voltage issues and Western Power doesn’t have the measurement capabilities. VPPs actually provide the measurement capabilities (at no cost to Western Power) so that the problems can be fixed. This is the same issue with Horizon. Once Horizon started putting out Smart meters with enhanced measurement they realised how bad the voltage stability issue was, but didn’t have simple tools to fix the problem however Plico does have the tools. Plico will find a way to make it economic. Western Power is very interested in batteries to help stabilise the network. Every house currently gets 7 kWh storage, however Plico can upgrade this to 14 kWh. Plico can install batteries at the marginal cost of the battery cell, no integration costs, no system costs. There is no way Western Power can install batteries at the price Plico can.What have been the biggest challenges for you so far on the project? The contractual process of convincing an infrastructure bank to put in $50 million for mums and dads. This is the big innovation. The complexity of dealing with contracts which are protected by consumer law and the regulatory environment while at the same time saleable. Anyone can write a one-way contract, but that wouldn’t work in this situation. So essentially Plico had to write a contract with themselves because it represents the community entity with external financing from SUSI Partners. Essentially a tripartite contract process which is really creative in its approach. That is the core of the business model. As is common project development, the project dies and was resurrected three times on the way through, but this a sign of good project in the minds of SUSI Partners (infrastructure bank in Switzerland) - who are so happy with the results, they have asked Plico to be their VPP and O&M worldwide.If you were to do the project again, what would you do differently? Very happy with how quickly it has gone, about 12 months. So thankful to the Dunsborough community for their patience and support; they have been through our hiccups because they believed in our vision. Haven’t had much support from some of the media and there is a lot of inertia about supporting the status quo. I’d set my expectations better especially timing and management of those expectations. Stakeholder expectations is the area to focus more on. The key aspect of VPPs is stability of communications and stability of control. This comes down to the evolution of software and technology. The Intellectual Property is coming from Redback Technologies in Queensland.WA is an unusual business environment. For these types of projects how much is political and how much is commercial focused? Why? Plico began the business thinking the company would need to have a strong political focus and that reduced over time. There is no active engagement in the political process. Plico doesn’t need anything from the government. Two critical points to making this work was no banks and no grants. The reason is the risk committees demand changes to contractual conditions which undermines the business model and takes the focus away from the business.What advice would you give to leaders of future projects in WA? The best advice I would give about project development is eternal optimism is an absolute given. Every problem becomes how to get around it. There are lots of road blocks. You need to be resilient as a human to push through those road blocks. That is the most important skill – back your ability to solve a problem. Every problem you see, others are seeing those problems too, so if you can find a solution, you have something different.Do you think the WA economy is sustainable? Why or why not? Absolutely. The biggest problem in attracting major investors is because WA is dependent on a coal power station. If we want to attract major energy companies focusing on data centres, battery manufacturing, processing, renewables whatever, we need to clean up our energy quickly. Because of WA’s wind and solar resources Plico believes WA could be at 90% renewable generation within 5 years. There is nothing holding WA back either technologically or financially. The finances are already there. It is just will. WA could be a shining beacon worldwide. The biggest issue I run into is myths. Myths that batteries are too expensive, it is better to buy a battery now. We also need to accept wind is the cheapest, cleanest form of energy on the planet, and we need to harness as much wind energy as possible. Electric vehicles – WA is ready, as it is mobile power storage.To have a decent career in WA in the future, what advice would you give school kids about the skills or disciplines to focus on? Kids need to learn resilience, creativity, soft skills. You don’t need knowledge, you can find it. Knowledge is everywhere. Learning how to learn or more importantly learning how to access all those things you want to learn, is the key. What type of industries? There is an awful lot of innovation coming. If you can start learning how to automate or program a drone, learn about autonomous skills, WA should be an automation hot spot world-wide rather than trying to hold onto past jobs. WA should be doubling down. My advice to politicians is that “You need to open the flood gates to get all of the autonomous specialists worldwide.” We already have a lot of it here, particularly for the mining industry. Anything to do with the energy experience. Plico want people to enjoy using energy and making themselves feel good. Most people these days feel guilty using energy, and they hate paying bills on a 60 day cycle that shocks them. Plico wants to get to a point where consumers are so empowered that they know the energy is theirs, they made it, it was clean. They feel great about it. The key lightbulb moment I had was that the whole energy industry has been driven by engineers and economists. All the fights have been between economists saying it should be the market and engineers saying they need risk and stability control. These two groups have been butting heads for a hundred years. It should be customer driven. Every successful business worldwide at the moment focuses on what customers want and need. The current energy market doesn’t even know who the customers are.Everyone is busy and you seem to have more demands on your time than most. How do you organise your time? You only win a sailing race when the rest of the boat is running itself and the crew knows what they are supposed to do so the skipper can see where the boat needs to go. The best boats are when the skipper gets his head out of the boat. So really focusing on what is important and let others look after the detail and this is where automation is phenomenal.Do you have any other comments about developing infrastructure in WA? What? We need to find a way to be more ambitious in addressing climate change. When you look at the engineering and the political debate around our energy systems you quickly realise that the inertia in those area would never be able to respond in time based on what the science says. A bottom-up movement, be that environment or social, has always started at the bottom. It never comes from the top. The Plico project is extremely different by design because we want it to bubble up from the bottom. There is no shortage of talent to be found across whatever field you need. WA has the most interesting energy problems and opportunities sitting on our door step. The SWIS is a great place to learn and develop technologies that can be applied around the world. For example, Africa needs to be 100% renewable and completely bypass traditional poles and wires transmission systems. Historically, WA has always focused internationally and is very globally conscious. This sector could be a massive export sector for WA. People, systems, technology, automation, batteries even the regulations. It comes down to will and ambition.

7 The power of vulnerability

It’s unlikely you will often read an article about vulnerability in an infrastructure newsletter, but here is why you should think about this. Joanne Church recently introduced me to The power of vulnerability | Brené Brown https://youtu.be/iCvmsMzlF7o. Vulnerability is important is that according to Brené it is also the birthplace of innovation, creativity, empathy and trust. Our society is being transformed by automation and hard skills will no longer be as valuable as in the past. Soft skills, like communication, emotional intelligence, cognitive or emotional empathy, innovation, creativity, empathy and trust will become more important and can’t be replaced by machines. Business leaders often tout that there is a need more soft skills in the infrastructure industry and perhaps we need to embrace vulnerability from time to time to achieve these uniquely human talents. This also means that companies and people who don’t embrace vulnerability are unlikely to have the soft skills required for the future and are more likely to become redundant.

8 Infrastructure Australia appointment

The positively loquacious Marion Fulker was recently appointed to the Infrastructure Australia board. Marion recently shared a vulnerable time of her life which showed an unknown side. Marion’s leadership of the Committee for Perth has had an immensely significant impact across a variety of issues. Her appointment was well earned, an astute choice and will benefit WA. Now, with more functions to attend, Marion will need to travel to Beijing more regularly for her wardrobe requirements.

Boorda Cameron

Welcome to the September/ Djilba—season of conception 2019 newsletter that shares unique and original commentary on WA infrastructure. It's been a very busy couple of months for InfraNomics, and I'd like to share some thoughts on issues across some relevant sectors in WA.

Subcontractors caught AGAIN in corporate collapse

On 21 August 2019 administrators were appointed to Kwinana-based Electrical Contractor EC&M. HMAS Stirling had a contract with Doric Group, that subcontracted EC&M to provide DC power supplies for the base. On the recommendation of HMAS Stirling, Magellan Power was engaged by EC&M to provide DC power supplies for a defence project at Garden Island. EC&M subcontracted Magellan to manufacture and deliver this equipment. With the administration of EC&M, milestone payments for amounts due have not been made and it is questionable whether they ever will. Apart from questioning whether EC&M were trading while insolvent, why should quality subcontractors continue to be punished for deficiencies in procurement processes, especially Federal defence engagements?

Managing Director of Magellan Power Masoud Abshar said “They drilled us down for every cent, reducing our margins to very little, with unrealistic time pressure. Then they took the completed equipment, and repeatedly lied to us for months when we sought payment. The last we heard from them was that payment would be in our account by Monday, and after that the phones were cut off, and no one could tell us anything.”

The WA state government is in the process of improving protections for subcontractors on government projects, by placing payments in secure bank accounts to ensure they flow down the subcontracting chain. Legislation to improve the protection of subcontractors is expected to become law later in 2019.

Good men, jail and boar semen

Torben Soerensen, Henning Laue from GD Pork Pty Ltd (In External Administration) were sentenced to jail for illegally importing Danish boar semen into Australia between May 2009 and March 2017. I’m completely supportive of Australia’s biosecurity laws as they provide a competitive advantage for local producers in terms of quality, disease free status and reduced use of medicines. However, Australia needs to continue to be at the forefront of development to ensure continuing international competitiveness and that there are benefits of genetics in animal husbandry. Newspaper reports stated that WA Pork Producers Association and Australian Pork called for the destruction of the herd to eliminate the competitive advantage of these Danish genetics. Since 1995, no permit to import pig genetics has been granted because of the biosecurity risk. Danish pig genetics are more fertile and productive than Australian pig genetics, with Danish sows averaging 32 weaned piglets per year, compared to the Australian average of 26 piglets per year (https://www.abc.net.au/news/rural/2019-08-14/semen-smugglers-sentenced-to-jail-for-importing-pig-semen/11407864). Testing by the Agriculture Department has found no traces of exotic disease and the herd has not been destroyed.

This is important because agricultural producers shouldn’t need to resort to nefarious actions to import genetics with the intention of boosting international competitiveness. There is an argument that there should be processes and procedures in place to ensure the biosecurity risks are addressed, like they are for other animals, so genetics can be imported. The main beneficiaries of this are Westpork, which bought the advanced GD Pork facilities and captured the genetic advantages. What is ironic is that pork is already imported from around the world - (cheaper, consumer quality and volume) and is widely available in shops. Fresh pork is not permitted to be imported to Australia and pork imports must be cooked at a prescribed temperature to render any diseases inactive. Hiding behind Australia’s biosecurity laws ultimately will not protect Australian producers from international competition as there is a strong incentive to improve local competition. How can all WA producers improve their herds through international genetics so that WA animal husbandry remains competitive and consumers benefit not only by lower costs? This should hopefully result in tastier bacon, which is locally raised.

This article was reviewed by the Western Australian Pork Producers Association Inc.

Collie beats South Australia

In a previous newsletter I spoke about how South Australia excelled in attracting overseas business to that State. We were recently in Collie with a client regarding a local project and I’m pleased to advise that the approach by WA’s government departments was professional, friendly, informed and positive. The impression left with us and our client, was so effective that the company switched its focus from Whyalla to Collie. A goal for the home team. Giving credit where credit is due, well done David Blurton – Collie Shire CEO, Bec Woods CEO Collie Chamber of Commerce and Industry and Mat Lewis - South West Development Commission.

Breaking the gender pay gap barriers

Regarding the ongoing debate about the gender pay gap, our company InfraNomics, pays women engaged as employees or sub-consultants substantially more than males, not because of their gender, but because each individual is more productive, delivers more and is usually better educated. That they happen to be women is irrelevant. Nicole Lockwood’s interview also highlights that contribution rather than gender is, and should be, the defining trait.

Pyrolysis is recycling that can change the world

Pyrolysis is the process of heating combustible material at high temperatures in the absence of oxygen to produce biochar, bio-oil and bio-gas. There is much discussion around the potential for the Landfill Levy to be renamed a Waste Levy, which may allow waste to energy to be subject to a charge in future. According to the Department of Water and Environmental Regulation under the Environmental Protection Regulations pyrolysis is considered to be chemical recycling under Categories 31, 37 and 39. As a recycling process, this would be an important selling point as pyrolysis has many benefits compared to traditional combustion of municipal waste. South West Regional Waste Group has a process underway that could fast track modern waste treatment in WA. Pyrolysis can change the world because it is perhaps the lowest cost carbon sequestration (biochar/charcoal), produces a bio-oil that contains valuable fractions, produced bio-gas is reused with no dioxins being produced, the biochar is a super soil improver and conditioner, it is a cheap and simple process, is modularised and finally can be used for all combustible materials including plastics.

The nascence of Infrastructure WA!

The inaugural Board for Infrastructure WA was announced by the Premier on 29 July 2019. The non-government members are Mr John Langoulant AO (Chairperson), Ms Nicole Lockwood (Deputy Chairperson), Mr Terry Agnew, Ms Kerryl Bradshaw, Ms Andrea Sutton and Mr Wayne Zekulich.

The four board members appointed from State Government agencies are Mr Darren Foster Director General Department of the Premier and Cabinet, Mr Michael Barnes Under Treasurer, Ms Gail McGowan Director General Department of Planning, Lands and Heritage, and Mr Richard Sellers Director General of the Transport Portfolio. Mr Lance Glare was appointed as Acting Chief Executive Officer while recruitment for the permanent CEO occurs.

This is excellent news for infrastructure development, financing, operations and recycling in WA. In the past there has been an emotional approach to infrastructure, which is incorrect. The focus has now swung back to a logical approach which is more in harmony with the industry.The initial focus of Infrastructure WA will be the development of a 20-year State Infrastructure Strategy. Globally, WA is in a real sweet spot and the next couple of years from our perspective look fantastic. WA is the land of second chances.

Boorda

Cameron

In August, InfraNomics interviewed Nicole Lockwood for her views on recent infrastructure developments, the WA economy, women in the workforce and advice for school kids.

Nicole Lockwood is an experienced non-executive director with a track record on regional, state and national boards focused on infrastructure, planning and regional development. Nicole is principal of Lockwood Advisory, Chair of the Westport Taskforce Steering Committee, Chair of the Freight and Logistics Council of WA, Chair of MNG Mining, Deputy Chair of Infrastructure WA, and Deputy Chair of Leadership WA. Nicole serves as a Board member for Water Corporation, Tourism WA, Infrastructure Australia and the Internet of Things Alliance Australia. Nicole’s career has spanned a range of fields including local government, regional economic development, law, events and corporate governance.

As the Westport planning project is reaching the end, what are the main things you have learnt about the project?

The power of engagement, the value of human relationships and the need for really good quality technical expertise. Every level is important, from engagement within our team to our entire governance structure, to engagement with our Ministers and the community/ industry and other experts, to other ports around the world. It really is everything. It is all about human interaction. Process is important and how you design the project and how you obtain information and testing and socialising it. It is also about how the people are involved and how every individual in the team needs to deliver on the promise of their approach to make it successful, otherwise the whole project is false and has no substance. I’ve been very, very proud of the Westport team internally, that every single person has taken the process and engagement seriously and I have received so much positive feedback about the willingness and the professionalism in what we do. The scope provided by the government was very holistic in nature and included port, road and rail, and allowed the Westport team to have a very different conversation. Learning from Infrastructure Australia and how poorly community engagement has been done in the past in projects around the country. It’s also been important to learn what a lack of holistic planning there has been and particularly the impact and social license, how little is done in that space, certainly from a long term strategic planning perspective. Locally, I’ve learned from having led and delivered projects in the Pilbara and seen what happens when you rush ahead. We had a window of time to deliver projects when there was money so we pushed through a lot to get things done. There is a time and place for that but less and less are we permitted to run that way. I have benefited from learning from these experiences about how we can do things differently, and brought this to the Westport project.

What would you do differently if you were to do the Westport project again?

I think we would firstly need to think about the timing. Everybody complained that two years was too long to answer this question. In our view, the only difficulty has been how quickly we have had to move. It does take a lot of time for a project like this to get up and running. You do lose a lot of your initial year just in setting it up. Only after one year did the project really get going and so more time. Thinking about the expertise available to us would be another big things and access to panels or governmental expertise. There are a lot of procedures and processes that took time to set up and made things smoother and quicker once active. Being more realistic up front about what we can and can’t do.

If Roe 8 & 9 don’t make sense commercially why do you think this issue is in the press recently?

People want to see action and a commitment to a long term plan. While we are getting there, that plan is still not complete. While uncertainty remains, industry and the community will push for action. There are numerous groups that have different perspectives on the issues of freight and congestion and there are a number of problems to be solved. It is unlikely that one project can solve multiple issues, instead it needs a network response which is what the Westport Taskforce recommendations will deliver.

What advice would you give to leaders of future major infrastructure projects in WA?

Long term planning is critical, particularly as infrastructure projects are increasingly required in established urban areas. Gone are the days of infrastructure planning being engineering-led. Economic, environmental and social factors must all be balanced in order to determine the best solution. Do not underestimate the importance of community engagement and establishing social license. Social values and expectations are constantly changing and the ability to deliver new infrastructure is built off the back of a partnership with the community and industry.

What suggestions would you give for the redevelopment of Fremantle Port?

Think beyond Australia. That location is unique and needs to have a role and function that is distinct from any other in WA. The opportunities to create something world leading are significant, to celebrate the history and recreate the future of an iconic site.

Do you think the WA economy is sustainable? Why or why not?

I think we have the potential to be sustainable but we need to stretch ourselves beyond our natural strengths of resources and leveraging off them. Nature has been kind to us, and human spirit and drive has allowed us to benefit from this abundance of assets. Now it is time to be bold and starting talking up all of the other strengths we have. Tourism, knowledge economy, innovation in automation and boutique foods just to name a few. We have the capability to lead the world in some of these, we just need to start backing ourselves.

As women are playing a greater role in transforming the workplace from a male dominated/focused environment to a more gender balanced environment, what do you think needs to change in WA to speed up this process?

We need to stop seeing it as an act of goodwill but rather as good business practice. In fact, it is broader than that. It’s not just about gender diversity, it’s about diversity full stop. I have often been the only woman and the youngest person in the room by at least 15 years for the last decade. Diversity in all its guises is critical for good decision making and successful businesses going forward. The pace of change in terms of social expectations and technology is both an opportunity and a threat for businesses and government. Misunderstood, it can be fatal to an organisation’s success. More specifically, on attracting women, we need to re-think the structure of work. Many roles are still very traditional in terms of hours and operating practice. For me it’s all about value proposition. There are numerous things I consider when looking at a role. Is it aligned to my values; what contribution can I make and what influence can I have over the outcomes; does it complement the other parts of my life that are critical to my happiness like my family and other personal commitments? I think workplaces are going to need to re-think how they attract people. It’s not just women who are looking for flexibility- technology allows us to be far more creative with the way we do work. That is an opportunity for everyone- male, female, old and young.

To have a decent career in WA in the future, what advice would you give school kids about the skills or disciplines to focus on?

I see a huge opportunity with the advent of technology for the future of work to be far more meaningful and productive. What we know is that the jobs that are about the head or hands are more likely to be improved through technology. Those jobs that require heart are here to stay! Leadership skills, organisational skills, technology skills and social skills are the way of the future. So, it’s about learning resilience, having an enquiring mind and being open to continuous learning.

Everyone is busy however, you seem to have more demands on your time than most, especially being a working mum. How do you organise your time?

I am naturally an organised person so that makes it a little easier, but ultimately it is about having a team behind you, at work and at home and taking care of yourself. I have a wonderful husband who has supported my every move. I have two amazing daughters and the four of us are a team, to run the house and manage the day to day. In addition to that I am very happy to outsource. Anything that I can get help to do, I do. Sleep, exercise, eating well and mental health are all fundamental for me and they all take effort, but they pay you back in spades. Surrounding yourself with capable people who share your values, in your personal life and at work. They give you energy and keep you safe. Then it’s about priorities and deciding what drives you. There are numerous choices every day about how you run your day, it’s about knowing what and who matters and where to spend your most valuable commodity- time.

Do you have any other comments about developing infrastructure in WA?

There is rarely a purely win-win solution to any infrastructure project- usually there are a range of problems you are trying to solve and balance against a range of impacts. The important thing is that doing nothing is not a better option and it requires leadership and vision and a willingness to take people on the journey to ensure we can maintain, and maybe even improve, our standard of living into the future.

Apart from Antarctica, Australia is the driest continent in the world. In Perth 40% or 124GL of drinking water, or approximately two times the volume of the entire Mundaring Reservoir, is supplied from groundwater. This 124GL is pumped from aquifers and used by industry, agriculture, residents and the general community before approximately 176GL of treated wastewater (from all sources including groundwater) is pumped out to sea, all at a cost to the community. In residential homes in Australia the highest use of fresh drinkable water is the shower, which is approximately 34% of total water usage. This is followed by the toilet 26%, and laundry 23%. Other uses, including drinking, dish washing and watering the lawns, account for only 17%.

Separately, it is expected that water pumped (abstracted) from aquifers will be reduced over time due to climate change and reduced recharge through natural processes such as rain. This lack of water in aquifers can also cause other environmental issues such as tree deaths and increased salinity. So essentially what is happening is that WA citizens and industry are paying a service and usage charge for water to be pumped from aquifers, resulting in environmental issues, then paying to treat wastewater (based on land value – not the wastewater going through the systems/plants), and finally pumping the vast majority of this very valuable/precious resource out to sea.

Figure 1: Perth rainfall comparison. It often comes as a surprise that Perth receives more rainfall than London or Melbourne. Various sources.

The main solution presented by the Department of Water and Environmental Regulation (DWER) (previously the Department of Water) to improve the health of the aquifers is the Managed Aquifer Recharge (MAR), for which there are examples across WA and internationally. MAR injects water back into the aquifer for future reuse, but this is expensive given the treatment criteria. The water needs to be treated almost to drinking standards and essentially there are other uses of the water for differing qualities. Currently, groundwater replenishment or MAR makes up 2% (will be significantly more when the expanded to 28GL Advanced Water Treatment Plant aka the Groundwater Replenishment Plant at Craigie is completed late 2019 or early 2020) of our Integrated Water Supply Scheme.

Prefeasibility studies have shown a MAR scheme design recharge rate of 10 ML/d. This represents approximately 6% of total waste water that is pumped out to sea from Kwinana and, as population growth means higher waste water volumes, this percentage will likely decrease.

The recent Waste Avoidance and Resource Recovery Strategy 2030 - DWERs current consultation piece “Legislative framework for waste-derived materials” essentially doesn’t talk about the water component of wastewater, even though it is a valuable waste stream, just the by-products. If you’ve ever drunk water in the Netherlands it has on average been through the equivalent of seven sets of kidneys before reaching your glass.

The water is owned by the crown and in theory can be accessed and used by any party through the DWER. So why isn’t more wastewater being accessed by industry and agriculture for alternatives uses? Essentially, it comes down to getting access to the pipelines that are currently monopolised. WaterCorp’s mandate is to recover costs however if the costs of this waste water are charged at WaterCorp rates, it is often uneconomical and nothing happens. We’ve seen a variety of projects die this way. The focus needs to be broader than the WaterCorp and involve the private sector (industry and agriculture) to incentivise them to use the water for further economic development, which is far more valuable and creates significantly more money for the state.

During 2017-2018 the Kwinana Water Reclamation Plant (KWRP) processed 10.25 ML/day from the Sepia Depression Ocean Outlet Landline (SDOOL) for use by industry. Of this, 6.73 ML/day was used by industries in the Kwinana area and the remaining 3.52 ML/day redirected back into the SDOOL. Industry discharged approximately 4.13 ML/day into the SDOOL.

It is difficult not to see that pumping waste water out to sea is a misuse of a valuable community owned resource, does not support state government economic development policy, blocks other users from the water, costs money and could be construed as environmentally pernicious. We are working with irrigators who would be prepared to pay 50 cents a kL, (the nutrients in waste water are a bonus not a penalty for many irrigators). This money should not be paid to WaterCorp but to whoever develops the relevant economic development assets that use this water. Assuming 60% of the 176GL can be used this is 106GL at 50cents per kL (see the water pricing assumptions below) is approximately worth $53 million dollars with no additional costs to government. With a gold price of $2,290 per ounce this equates to 23,144 ounces of gold flushed every year out to sea and the reason why WA’s second Golden Mile is actually off Garden Island. If this water was used, we have calculated that the economic, social and environmental benefits are a minimum eight to ten times this cost. So when you’re next travelling to Rotto, look south and imagine a river of liquid gold heading west.

Sources:

https://www.watercorporation.com.au/water-supply/our-water-sources

Water Corporation – Performance Compliance Report 2017-2018 - Ministerial Statement 665 2017-2018 - Table 1 – Volume of treated wastewater discharged via SDOOL

Australian Government - http://www.yourhome.gov.au/water

https://www.watercorporation.com.au/water-supply/our-water-sources/groundwater-replenishment

Report to National Water Infrastructure Development Fund : Western Trade Coast Managed Aquifer Recharge of Treated Wastewater for Industrial Water Supply Feasibility Study April 2019

Water Corporation – Performance Compliance Report 2017-2018 - Ministerial Statement 665 2017-2018

Israel recycles 87% of their waste water. Israel Waste Authority 2016

Perth Mint pricing 29 August 2019

Within agriculture, drones are being more widely adopted as a means of helping the agriculture and horticulture industries to make better informed decisions. That said, there is still a lot of scepticism around the data and how useful it may be. For these sectors, the biggest question is “How will this data or application improve my current decision making process and help me to make me to save, or make more money”?

Australian Training Management partnered with an intelligent agri-industry specialist business, Stratus Imaging. Straus is able to provide actionable data through the use of various platforms and sensors and most importantly combine it with analytics, offering critical data usage concepts and informed decisions. These services allow the companies to provide industry growers with a fast and efficient scouting tool that identifies weeds, disease, insect damage and nutrient deficiencies on a paddock and farm scale via sub mm resolution.

The sensors and technology utilised increases farming and agricultural efficiency, reduces costs and minimise risks, and in combining imagery with aerial applications from a swarm of drones (up to 5 drones operated by 1 pilot), allows for direct and targeted applications to be actioned in small and adversely affected areas. It also allows targeting of hard to reach areas, due to water logging or farmers not wanting to compact their crop, and never-before accessed areas due to terrain.

The image illustrates the mapping of environmental parameters in vineyards, and the optimisation of grape and wine production, enabling more effective decision making by producing digital thematic maps.

Drones on their own will never be the complete solution to all farmer and agricultural grower needs. There always needs to be an understanding of what is required from a grower’s perspective and then address those identified needs with the best and most financially viable technology available; such as using drones in swarm formation, using the latest innovative sensors and applications, as well as the catalogued and analysed data to facilitate positive change.

Ultimately, drones and their sensor applications are not replacing what farmers and growers are currently doing, but rather complimenting and raising their level of understanding. By offering a deeper insight into their operations it allows for a smarter and more informed decision making process to increase the return on their investments.

Australian Training Management is also partnering with Drones2, who a company that specialises in open source flight program drone systems, multi rotor and fixed wing, both ready to fly and customised solutions. Most ready-to-fly drone systems require Applications (Apps) to control and manage data. Open source systems enable the system to be modified to suit specific applications and for the user to maintain data security, such that all data captured will remain securely within the system's hardware.

Drone technology has advanced significantly over the last few years, as positioning systems and data capture sensors (cameras) have all become more accurate and reliable to expand the role of drones. The power of drone technology is its ability to operate autonomously and to capture vast amounts of data.

Rapid post-processing of such data enables fast decision making in the field. Western Australia is particularly suitable for drone technology - with expansive regional and remote areas, drone mapping and surveillance has benefits across land management and heritage, conservation and rehabilitation, fire monitoring, construction monitoring/quantity take-offs, infrastructure inspection and much more.

Drones2 also provides drone technology education to Western Australian school students within STEM subjects, to enhance the technical and scientific skills and knowledge of future users.

Due to the nature of complex large scale economic infrastructure projects there is often a significant amount of upfront work involving multi-discipline teams. Once a potential project has been identified then there is organising the investors, commercial/ economic reviews, completing pre-feasibility then feasibility studies, community engagement, design/ engineering, project structuring, financing, value engineering, and approvals prior to the Final Investment Decision. As stressed in the interview with Nicole Lockwood, the role of community and stakeholder engagement is becoming increasingly important, as is whether or not a project has sufficient commercial basis. Too often in the past, projects using public sector money have been developed based on meagre or incomplete business plans.

There is a growing realisation that a full lifecycle approach is required that considers the project not only during the construction but also throughout the operational phase. What are the project objectives and does the proposed project best achieve these goals? Have the spectrum of ideas from within government and the private sector been explored and evaluated?

A project should start with answering the following questions:

Who really benefits from the project?Will the party that benefits pay for the upfront project work?Who is the credit-worthy counterparty that will eventually pay for the project?

Based on the answers to these questions a party/ parties are identified that will pay for the upfront project costs. Without this step, the project needs to be killed as quickly as possible to ensure money and time aren’t wasted. There is no need to create detailed engineering or cost studies if the underlying commercial aspects don’t work. So rather than redoing engineering pre-feasibility and feasibility studies, redirect the funds towards and making projects commercially viable or de-risking it and then perhaps get the private sector to pay for the studies and planning.

Risk is another area that is often overlooked. A detailed risk analysis process needs to be completed to ensure the parties best able to mitigate the relevant project risks are responsible for those risks. For instance, the risks of construction cost overruns and delays, financing, engaging operators and asset maintenance are considered to ensure the project is investable with a suitable risk-return ratio.

Many projects also benefit from an assessment to determine whether or not a Public Private Partnership (PPP) model is appropriate. Value for money analysis, comparisons of public and private sector project budgets, optimal risk transfer and allocation, level of private and public sector investment and stakeholder engagement are some of the main areas to cover.

This also means that the traditional repeatable skills-based analysis is becoming less relevant. More and more, multi-disciplinary approaches with a broad range of skills and expertise are more suitable to the development of new projects. People can be trained in engineering, science, banking, accounting or economics but then diversify into different fields so that there are diverse skills and expertise across economic, technical, environmental, social and financial aspects. It is virtually impossible to secure top level specialists in all these disciplines from one firm and therefore skillsets have to be sourced from specialist consulting firms, subject-matter experts, legal firms, universities and research institutions to prepare projects effectively. This also increases costs, although infrastructure origination and project preparation costs in Australia are usually within the range of 3-5% of total project costs, which is consistent with our experience in WA as well.

One issue that we have noticed is that governments around the world often do not accurately track infrastructure project preparation costs, as they are usually lumped in with other initial costs before the project is approved. To improve this, government budgets should clearly detail in a transparent manner the costs incurred in project preparation which also improves budget allocations and future infrastructure spending. What we currently see is that the information is being recorded however, reporting could be more detailed to improve cost management and the allocation of scarce resources.

Welcome to the June 2019 newsletter. This edition focuses on our delegation to the Hannover Messe industrial and trade fair, meetings with the European Commission, the European Battery Alliance, secondary processing of new energy materials and bikes.

Critical Raw Materials – BASF Event

InfraNomics is co-hosting an cocktail reception on 25th June 2019 that is focused on the relationship between Western Australia and the European Union and the development of partnership opportunities for critical raw materials.

Paul Houston, Global Business Development Manager at BASF, will present on BASF’s activities in this area. There will also be local industry presentations and an overview of the April 2019 WA delegation to the European Commission to present on battery mineral strategy and supply.

We would love to see you there.

RSVP here: https://www.eventbrite.com.au/e/critical-raw-materials-developing-partnership-opportunities-between-western-australia-and-the-tickets-63547304699

The Great 2.8% Debate

The feedback on our The Great 2.8% Debate article was as interesting as it was unexpected. We received a lot of feedback from around Australia, including government departments and diverse stakeholders who all who appreciated the new perspective we brought to this issue. It was fulfilling to find the information is being informally and widely disseminated.

In the recent community engagement sessions, the Westport taskforce has advised that the final growth rate is being revised and will sit somewhere between 3% and 4%. We are not aware of what Westport’s motivation for changing the forecast is, nor do we know whether this is the new base case or worst case. However, it is positive that the growth forecast is moving in the right direction. (For reference, increasing the growth rate from 2.8% to 3.5% means a new port is need in CY2027, two and a half years earlier than previously forecast by Westport.) As Westport have stated, even small changes in the forecast percentage have a significant impact.

Market Led Proposals

We congratulate the State government on the market-led proposal (MLP) legislation. This legislation is an important part of building an environment that fosters innovation. Prior to the MLP, there was no incentive for industry to originate new infrastructure ideas. Any new idea presented to Government was not protected from appropriation by others and the originator of the idea risked receiving neither recognition nor compensation for their hard work and intellectual property.

When innovation is stifled, the real losers are West Australians. Now that there is a process for formally registering ideas and concepts it is harder for intellectual bowerbirds to acquire and use the ideas and innovation of others without at least recognising the source. The MLP legislation will almost certainly result in an increase in new projects using the latest technologies and innovation while reducing demands on government funding.

Rowley Road

Anketell Road and Rowley Road were identified over a decade ago as highly strategic road links between the Kewdale freight and logistics hub and the Kwinana Industrial Area and planned Outer Harbour development. Fast forward to 2019 and we are hearing from several organisations who are concerned that the strategic value of the heavy load road access on Rowley Road in Cockburn has been compromised in recent years by residential developments.

It is worth questioning how this rezoning of strategic land could occur, as the potential financial impact is immense. The cost to the State of using this land for residential rather than industrial and freight usage could easily amount to hundreds of millions of dollars. There are discussions of a full enquiry into this Rowley Road rezoning and repurposing and we look forward to hearing more.

Oyster Shells

On a side note, one of the interesting stories from Europe related to high purity oyster shells that apparently come from China. When we met representatives from the Swiss watch industry (they need batteries and exotic materials) they mentioned they need an ongoing supply of high quality white oyster shells. In the past these shells came from China, which sourced them from Western Australia (similar theme to lithium). So, selling the shells directly to Switzerland not only cuts out the middle man, it also improves quality, product development and direct communication between West Australian producers and retailers.

Again, this is about being smarter with the resources WA companies have. Without doubt, the same thing happens in other industries, lithium just being one. Better connections with end customers around the world are needed. More on this later in the newsletter.

Boorda

Cameron

German Chancellor Angela Merkel experiencing the wonders of new technologies at the Hannover Messe 2019. (Image: ndr.de)

The Hannover Messe or Hannover Fair is one of the world's largest trade fairs. In 2019 it was held on 1-5th of April 2019 at the Hannover Fairground in Germany. There are approximately 6,500 exhibitors and 250,000 visitors per year.

InfraNomics was delighted to be invited by the German Government to one of the world’s premier trade shows based on the contribution to the Lithium Valley report from last year. The Hannover Messe is an outstanding display of the latest global technologies and trends. Although it was interesting to investigate the latest developments across various high tech industries, the primary focus was power storage and critical raw materials.

A standard question we asked the companies was where their battery cells came from. In all instances the answer was the cells came from China; European companies were surprised that all critical raw materials could also be sourced from WA. It was also a revelation to many that Australia has the second largest known deposits of cobalt. Companies are especially sensitive to ethical and sustainably mined cobalt and current ethical cobalt purchases exceed supply several times over. Australia has a partial solution to the ethical and sustainably mined cobalt problem.

We were fortunate to meet the WA Agent General, Mike Deeks, who was busy and in demand at the Fair. There were several European battery companies in the secondary and tertiary processing segments that were interested in developing a presence in WA. Direct discussions are ongoing and announcements will be made where appropriate.

According to the European Institute of Innovation & Technology (EIT) raw materials and advanced materials are the key enablers for transition in the energy and mobility sectors. These two sectors are strategically important for Europe and as Europe is almost 100% dependent on imports of these raw materials,[1] security of supply and competitive pricing is essential. This strategy was summed up by a recent quote by M. Brudermüller, CEO BASF:

“What I think is far too little considered is the question of accessibility to battery materials in Europe and also to the respective raw materials, that is, nickel, cobalt and manganese. These materials are under strong control of the Chinese, which is why we should secure the access to them.”

Although the Europeans seem to recognise what needs to be done, the only way this strategy can be executed is by European companies investing directly into resources. The scale of investment needed hasn’t occurred yet and maybe it is too late? Europe’s share of global cell manufacturing is 3% while Asia has 85% and the European Commission recognises that there is a real risk that Europe falls irreversibly behind its competitors and becomes dependent on imports of higher priced raw materials and batteries controlled by 3rd parties.[2] InfraNomics will continue to work with the European Commission, governments and companies in developing more robust supply chains for raw materials and energy storage solutions.

On another note, the South Australian pavilion was in the centre of one of the most important halls and was a marketing triumph. In contrast, the Austrade stand was unfortunately in the furthest, darkest corner of the entire Messe. South Australia actually asked Austrade if it is worth collaborating on Hannover however no agreement was reached, so went alone with their stand. As there is enough international competition, there is also an argument that Australians and New Zealanders could improve their collaboration. In the meantime, WA could perhaps work with SA and any other State interested in marketing to the world. The current piecemeal approach does not appear to be a successful strategy, especially when you see first-hand how other countries do it.

The South Australian pavilion at the Hannover Messe 2019

The main takeaways from this year’s Messe were:

a) Hydrogen is progressing faster now than in the last 15 years.

b) Digital twins and predictive maintenance are mature technologies.

c) European technology and the automotive industry are dependent on Chinese battery cells.

d) Hardly anyone knows WA has critical raw materials as they believe all raw materials come from China.

e) South Australia is better at marketing than any other state by a country mile.

There were some major findings from the trip that will guide the strategy and continuing development of Lithium Valley over the coming year. As the trip was a success, planning has begun to attend next year with a larger delegation.

Cameron Edwards (Director, InfraNomics) and Colleen Yates (CEO Regional Development Australia – Perth) at the Hannover Messe 2019

[1] JRC analysis based on data from report of the Ad hoc Working Group on defining critical raw materials, 2010,‘Critical raw materials for the EU

[2] Report from the European Commission on the Implementation of the Strategic Action Plan on Batteries: Building a Strategic Battery Value Chain in Europe, April 2019

L to R: Roland Gauss (European Battery Alliance), Colleen Yates (Regional Development Australia- Perth), Karen Hanghøj (CEO European Institute of Innovation and Technology - Raw materials) and Cameron Edwards (Director InfraNomics), Brussels 2019

Recently the Volkswagen Group and Ganfeng Lithium Co., Ltd. (registered in Jiangxi, China) signed a memorandum of understanding on long-term lithium supplies for battery cells. Under the agreement, Ganfeng will supply lithium to the Volkswagen Group and its suppliers for the next ten years.[1] Where does this lithium come from? Some of it certainly comes from WA, as Ganfeng has 50% ownership in and an offtake agreement for 100% of the Mt Marion mine 6% spodumene concentrate. Ganfeng also has an offtake agreement with Pilbara Minerals for 150,000tpa of spodumene concentrate once the Pilgangoora plant has been completed.

Many other major car manufacturers have recently rushed to secure supplies of raw materials including lithium, rare earths and cobalt. Unless the car companies take steps to control their supplies of raw materials, these car manufacturers will be buying their batteries from the companies that do control the raw materials. The car companies will therefore be paying a premium compared to those companies with more strategic investments further up the supply chain. As several of these critical raw materials are in opaque markets dominated by a few parties there is a real risk of market price and supply distortion.

Electric vehicles are effectively batteries on wheels and the battery is central to the entire vehicle’s performance. In electric vehicles, the vehicle performance is a function of the battery management system, the battery specifications and the quality and purity of the materials used in the battery cell manufacture. Suddenly, battery specifications are core intellectual property for automotive companies.

If car companies are relying on 3rd party suppliers for their batteries, this means that core intellectual property is existing outside the company. As the 3rd party battery suppliers will know the power specifications and limitations of each car company’s batteries, is there a risk of battery cell suppliers entering into preferential agreements with car companies to differentiate or reduce differentiation between models? If one battery supplier has the specifications of the batteries from competing car companies, how is the core intellectual property of an electric vehicle’s performance really being protected? Furthermore, will car companies always be able set their own battery specifications in the future, or will the cell manufacturers force customers to choose from a “battery menu”, thereby allowing electric vehicle performance to be controlled by 3rd parties?

Historically, European manufacturers and their suppliers have had no problems buying raw materials on the open market – until now. Recently, a blue chip European automotive company put out an expression of interest for cobalt with the standard tome of conditions. Not one company answered. This was a watershed moment and a wake up call from the supply chain complacency of the past. However, it appears the resulting knee jerk reaction could be more problematic in the long term if these same automotive companies become dependent on suppliers who dominate market supply and pricing while having close relationships with competitors.

We accurately forecast these developments in the Lithium Valley report. European companies have in the past almost religiously avoided upstream investments. Now it is going to cost them. Not only in money, but also in technology transfer and lack of intellectual property protection, security of supply, and strategic control over the development of their products. Core components sourced from countries that also have strong domestic electric vehicle manufacturing industries will likely be systemically higher priced to international competitors than the same items are priced in the domestic market.

It is difficult to see how the European companies can get out of this and still be cost competitive going forward without a dramatic change in thinking. In this case the Gordian knot legend could be a suitable analogy. When the game of international battery material supply chain control is viewed for what it really is, it is hard to imagine Europe's current approach not having a major negative impact on European companies and their Bloc’s economy, with a knock-on social impact.

In meetings with the European Battery Alliance and the companies involved, it was clearly demonstrated that there is a massive opportunity for Australian firms to deal directly with Europe. There is a change in the global dynamics and Australia is in the middle of it.

The European Commission publishes a list of Critical Raw Materials. Interestingly – and somewhat alarmingly – in InfraNomics’ meeting with the European Commission we were advised that this list has been based on historical rather than future demand. This was one of those penny dropping moments… Gulp! So, going forward the situation is far more dire than currently reflected in EU documentation and this must impact policy and the Bloc’s economy, assuming the EU now recognises the limitation of their current approach.

Europe is now investing billions into this area, especially innovation, research and collaboration. It is hoped this money is targeted towards achieving the long term goals. However, one must ask: have the upstream components of this strategy been properly considered?

One point worth noting is the cost of energy. The Europeans were very sensitive to the sources of energy, particularly in an energy intensive business like refining. The companies the WA delegation met consistently requested 100% renewable energy. Again, WA has won first prize with abundant solar and wind as well as competitively priced domestic gas. New renewable energy projects in WA can now cost <A$0.10/KWh compared to energy pricing in Germany of A$0.24/KWh (non-residential) or A$0.47/KWh (residential).[2] Energy is a major competitive advantage for WA, especially for energy intensive industries. Add in the advantages in logistics, tax, employment costs, etc, and WA becomes very attractive from a global manufacturing perspective.

Unfortunately, as we realised many times during the WA delegation, it is fair to say that internationally, the benefits of manufacturing in WA are relatively unknown.

Although the Hannover Messe is one of the largest trade fairs in the world, there was no WA stand. There was no promotion of the tremendous value proposition of WA. The complete lack of knowledge about Western Australia at a European level was astounding. Everyone knows WA has great beaches and dangerous animals but little idea about resources or mining. Comments about WA’s space industry just drew blank looks.

Perhaps the best example of the ignorance of WA is the following anecdote. Sustainability and renewable energy are so important in Europe and we were frequently asked about our energy sources. One question received was “Can you put solar farms in WA, is there enough sun?”

It was clear that there should be greater emphasis on renewable energy in WA, especially if Europeans want to pay for it. As WA is an export-focused region, greater international recognition of what is in WA, in terms of facilities and opportunities, would likely be of benefit. For too long WA has relied on other countries or states to market WA products and this has had a substantial cost to the economic development of the State. The Hannover Messe and similar fairs in Asia and the Americas can only be positive opportunities to build the profile of local companies.

If WA won’t invest in promoting WA, how can we expect anyone else to invest here?

One area may be to focus on agricultural exports. Walking through Dubai airport it seems that it would be a great location to open a WA store for WA regional produce as well as for tourism and business. Open 24 hours per day, Dubai airport is a major world hub with over 90.2 million passengers forecast (in 2018) from 75 international airlines and servicing 240 international destinations.

Rather than replicating what is on offer at Perth International Terminal, a WA Dubai store could potentially focus on products that people can take with them to their next destination. Bunbury port and the Busselton airport are ideally suited to supporting this growth in international trade. Perhaps brand it around Bunbury or Manjimup which will continue develop over time as world leading agricultural centres for quality and freshness. Or potentially develop a new brand representing all of regional WA?

Successfully building the WA brand needs to be a collaborative effort between government and industry. Engage with experts in this area who have the people, systems, processes and reputation. Suggestions may be to work with The Bunbury Farmers Market or The Boatshed – Cottesloe. Perhaps the State government could underwrite the project, at least for an initial period, holding a 49% stake in the venture so there is a return to the State but derisking the project. The producers benefit from increased sales volumes which is where their profit is.

The argument for Dubai is that it’s a world trading hub, especially for people outside of Asia who would not have seen WA produce before. The whole concept demands fresh, clean and sustainable produce with luxury brand quality, which is what WA is. Daily cargo freight of WA produce could be sent and as volumes grow potentially use this as way to develop Busselton airport.

An initiative such as this would require a proper business case with people who are working and are successful in this industry. Don’t use consultants or department people who have no skin the game. The aim is to share the risks and rewards with experts in the field and to avoid departmental people who have no successful experience in these fields. Perhaps focus on developing Bunbury and Busselton as major international agricultural and food export hubs and destinations.

Bikes in the main street in Winterthur, Switzerland. Notice the sign posting and lack of cars – April 2019

In Europe there is real congestion. However, the transport options are increasingly diverse. Driving through one city there were electric scooters, bikes (sharing and private), electric buses, trams, trains, shuttles as well as cars, trucks, prams and pedestrians. Although this made it more challenging to move through, it also reflected the balance of convenience and cost of transport.

Noticeable was the increase in cycle paths, cycle parking and a respect from drivers. There is plenty of evidence that cycling reduces congestion as well as reducing pollution, improving health, saving money and bringing positive social benefits. The continued move towards restricting cars in favour of public transport and bikes is very noticeable in Europe, thereby increasing convenience and reducing costs. Perhaps close one lane (or two) either way on St George’s terrace for bikes and restaurants/ cafes?

A multi-decker bike stand next to the town hall in Munich, Germany – April 2019

What this is really about is the social and economic impact of different modes of transport. Cars are notoriously inefficient, wasteful, expensive and increasingly inconvenient. There are economic and social arguments to support more diverse transport options and the use of scarce resources (cash) to achieve the maximum impact could be better considered, as it seems WA is an outlier. This also supports greater urban density because it means more and better services therefore greater convenience. Our studies into the economic benefits of increasing urban density makes it clear it is the best option not only for government but also developers and dwelling owners.

L to R: Cameron Edwards, Winnie Lai Hadad and Steve Herlihy at the Asian Development Bank in February 2019.

Welcome to our first newsletter for 2019.

WA is without doubt a land of extremes. Although there are plenty of bad news stories out there, WA also produces world class companies operating in so many fields and most are unknown outside their industry, ‘Stealth SMEs’. In our business we meet these companies like Magellan Powertronics, Hofmann Engineering, Coogee Chemicals, Center West, Lepidico, Neometals, Lithium Australia, Silverhorse, Linc and others. These companies play a crucial role in transforming the WA economy to a more sustainable basis and creating new jobs needed for future generations. Champions of industry are the core of where future jobs will be created and support in streamlining approvals for developments would add to economic and social development.

We are still waiting for the Market-led proposal legislation.

The Westport: What we have found so far report in December was an interesting read. There are many items we could comment on, some strategic and some minor. In this newsletter we have focused on just one point, which is the forecast 2.8% growth rate over 50 years, more about that later on.

Show me the money

It is admirable that the current State government is proving to be a worthy custodian of the State’s finances. We are very supportive of WA’s traditional thriftiness. However, there is a time and a place for everything and we believe this is the time for investment. Our feedback from companies and various stakeholders can be summarised as “WA’s shoestring approach to business investment is hurting the State. How can we expect the Federal Government to contribute funds when the State will not show the colour of its money?” This is a fair point especially considering neighbouring countries and states are investing heavily in infrastructure and preparing for Industry 4.0.

Even the SA government has pledged $150m that can be borrowed against to provide $700m of funding for a new deep-water port along the Eyre Peninsula. (Isn’t that great, SA is powering ahead with not one but three proposed new ports along the Eyre Peninsula!) The economic development that will be generated from a new modernised deepwater port will be immense and it is becoming very tempting for companies to focus their expansion plans on SA due to the favourable business environment and a government that is eager to support innovation and new industries.

Are the powers that be focused too much on the costs of infrastructure without properly considering the value and benefits generated by the investment? Have the economic and social benefits been appropriately considered (including comparisons) together with the costs over the life of the investment? As we’ve seen with some past infrastructure projects, when you miss an investment window it’s gone, sometimes for a generation or more. From our perspective significant investment is required to prepare for future businesses and industry.

Future Battery Industry Strategy

January saw the WA State Government release its Future Battery Industry Strategy document. It is terrific to see that the State Government has recognised just how important the Future Battery Industry will be to WA. The Future Battery Industry Strategy clearly communicates to everyone - industry and the various State Government departments - that WA has to grab this opportunity with both hands.

The next step is for the State Government to realise that the key target market for export is not Asia but rather Europe (in particular Germany) and the USA. There needs to be a fundamental shift in the procurement strategy for European companies as the only way to ensure that they will have access to the new energy materials that they require for manufacture is to invest much earlier in the supply chain.

The Future Battery Industry Strategy is a very promising start but only time will tell whether the State Government chooses to support industry where necessary to develop and sustain the future battery industry in WA.

Fulbright Scholar Caitlin Cain

We have had the pleasure of working with Caitlin Cain, CEcD, economic development specialist and former CEO of the World Trade Center, New Orleans, USA. Caitlin is undertaking a Fulbright Industry Fellowship with Curtin University. At the end of her fellowship, Caitlin will deliver the report Accelerating Global Competitiveness: Western Trade Coast to the WA State Government. On a foundation of the world's best practise for economic development and her own world-class experience, Caitlin will outline a plan to drive WA’s economy forward and increase international trade.

The report will detail the case for developing a Special Economic Zone (SEZ) as part of the Western Trade Coast and simplify the steps to a future-focused secondary processing and value-adding environment. The report will also show that we can significantly improve the efficiency and effectiveness of our regulatory environment without sacrificing compliance or integrity.

Caitlin brings a wealth of knowledge and experience to this subject area and we look forward to the release of her report on 13th March 2019. Tickets are available at:

Infrastructure WA

On 19th February the WA State Government launched Infrastructure WA (IWA) as part of its Plan for Jobs election commitment to create 150,000 jobs. Assuming the legislation passes Parliament, IWA will be chaired by John Langoulant AO and the first priority of the IWA will be to develop a 20-year State Infrastructure Strategy. If executed well, IWA will be a valuable body acting as an independent advisor that evaluates infrastructure proposals based on merit, economic rationality and strategic importance. We will see whether it becomes a political vehicle or is truly independent. Properly run, IWA has the potential to attract increased funding from Infrastructure Australia and should improve the allocation of scarce resources across terms and changes of government.

If executed poorly, IWA will be a proverbial toothless tiger that consumes more value than it generates and the status quo will remain. Again, time will tell.

Boorda

Cameron

InfraNomics has been working with the Asian Development Bank and the Federal Government about increasing trade in WA’s Indian Ocean Region. An increasing theme in InfraNomics’ work is the attention that is being directed towards the Indian Ocean Rim. Six of Australia’s Top 15 trading partners are from the Indian Ocean region. Over 50% of Australia’s total exports depart from ports in the Indian Ocean and over 90% of Western Australia’s imports and exports pass through ports. With a combined population of over three billion people in Western Australia’s time zone, it’s about time that the Indian Ocean Rim is no longer ignored.

The strategic importance of the Indian Ocean Rim has also been highlighted in the shift in terminology from the “Asia-Pacific” to the “Indo-Pacific”, which is essentially the Asia-Pacific plus India. Even the United States is formally recognising the region as the “Indo-Pacific” and changed the name of its United States Pacific Command (USPACOM) station in Hawaii to the United States Indo-Pacific Command (USINDOPACOM) in May, 2018.

There are over 25 countries that make up the Indian Ocean Rim. With the Indian Ocean now the world’s business trade corridor (surpassing the Pacific and Atlantic oceans),[1] WA is in a prime position to develop our trading relationships with these emerging markets and in turn become a lynchpin in Indian Ocean trade logistics.

A lot has been written about China’s One Belt One Road initiative. China recognised the strategic importance of the Indian Ocean Rim and has been steadily investing hundreds of billions of dollars on infrastructure projects throughout Africa and West Asia, such as Tanzania, Kenya, Somalia, Sri Lanka, Pakistan and Bangladesh.

In August 2018, Australia, as part of an alliance with the US and Japan, launched a US$113m fund to provide support to Indian Ocean Rim countries for digital economy, energy and infrastructure projects. Hon Bill Johnston MLA has been developing the relationship between WA and the Common Market for Eastern and Southern Africa (COMESA) which we believe has the potential to dramatically increase bi-lateral trade for the benefit of all countries in the region.

The Asian Development Bank is running a project on Promoting Investments and Economic Growth in Central and West Asia, East Asia, and South Asia Subregions, of which most member countries are part of the Indian Ocean Rim. The project is about the development of a Trade Credit Insurance and Guarantee Agency (TCIGA). The TCIGA initiative is intended to facilitate increased trade, economic and social development, thereby allowing member countries to grow their GDP through exports. Local company Pitcher Partners teamed up with GDSI (Ireland) and submitted the winning bid. InfraNomics will be providing specialist technical advice on international trade, trade financing and business case expertise for this project. This shows that WA advisory companies can beat the rest of the world in providing world class advice.

Initiatives such as the TCIGA and the support of organisations such as the Asian Development Bank initiative will be a game changer for the countries involved. It will provide the financial tools required for these countries to grow their domestic industries and in turn increase their value-added exports. In turn, the opportunities for WA to grow our economy whilst assisting Indian Ocean Rim countries grow theirs will be numerous.

With the right initiative, strategy and governmental support WA has the opportunity to become a trade and expertise powerhouse in the Indian Ocean Rim. In the future this may mean that Perth’s CBD becomes a regional financial centre, Kwinana the premiere regional industrial area with world-leading port facilities and Fremantle a regional tourism, cultural and entertainment capital. It’s up to us to take the opportunity and run with it.

[1] https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook44p/IndoPacific

In December 2018, the Westport Taskforce delivered their interim report Westport: What we have found so far (WWHFSF). The report identified eight strategic options with different combinations of bulk, container and passenger movements across Fremantle, Kwinana and Bunbury ports. Stage 2 of the Westport process includes undertaking an in-depth investigation of these options and is scheduled to be delivered by the end of 2019.

It is fair to say that the Westport Taskforce is responsible for delivering the planning for one of Western Australia’s most important assets. However, to get the right answer to any problem, you must first start by asking the right questions.

The curious 2.8%

In the WWHFSF report, the growth rate used for all forecasts is 2.8% over 50 years and this raised a few eyebrows. No alternatives were presented, not even best, base and worst case scenarios. Deloitte Access Economics, who performed the analysis for the report, developed the 50-year forecasts of trade activity based on global and Australian macroeconomic drivers. The Deloitte forecasts are limited to trades which have been observed in history or have existing plans and related infrastructure in place (such as spodumene).

Does this mean microeconomic and industry drivers, future trade opportunities, the regional impact of a new port, additional port capacity, variable pricing, changes in infrastructure, current constrained infrastructure, location and industries or the development of future Indian Ocean trade were ignored from forecasts? Is there any explanation and reconciliation of why actual growth rates are more than double the Deloitte long term forecasts?

Where did the 2.8% come from?

Where did the Westport/Deloitte forecast growth rate of 2.8% come from? There has been no public justification of this 2.8% growth rate. As it turns out, 2.8% is exactly the same as the projected annual growth rate of real GDP through to 2055 given in Federal Treasury’s 2015 Intergenerational Report.[1] The Intergenerational Report number is a national average rather a number derived from specific analysis of WA trade and industry which is a cause for concern. There is no mention of future Indian Ocean Rim trade, improved trade with modern infrastructure and logistics, competitive international pricing, interviews with local companies or other local impacts.

The historical Compound Annual Growth Rate (CAGR) of twenty-foot equivalent units (TEUs) through Fremantle Port between 1997 and 2018 was 6.39%.[2] The Westport Taskforce is using a 2.8% CAGR over 50 years for its modelling. Was there a common sense check done on this 2.8% number, especially for short term planning? Even if there is some catastrophic event (such as a war or naval blockade) in the future that results in the CAGR only being 2.8% over 50 years, it is difficult to understand why Westport/Deloitte would use a CAGR that is less than half the twenty-year average for near term forecasts.

Using a 2.8% growth rate for near term forecasting comes with some serious inherent risks. On what basis should it be assumed that Fremantle Port will only grow at the same rate as the Eastern States? Eastern States growth models are often population based, however in WA they are export based. The only way an appropriate growth rate for WA can be determined is the old-fashioned way of undertaking an in-depth analysis of the local market by directly engaging with the relevant local stakeholders and building up a detailed trade flow forecast. It appears that future trade from the emerging Indian Ocean Rim market and the extent of the new energy materials industry have not been considered. To determine an appropriate growth rate with these markets and industries in mind takes time, effort, expertise and local insight.

Using a 2.8% growth rate is also problematic and risky because it appears to severely underestimate TEU growth. It is clearly understood that port planning is complex however the conservative approach is to include latent capacity to avoid knee jerk reactions and expensive band aid solutions. Industry would usually build in additional capacity and expect sales to fill it.

Fremantle Port’s actual growth indicates problems in about 6 years

The recent Business News Ports and Transport Special Report stated that The Westport Taskforce considered that it will be 2030 until an outer harbour development is needed, which will be when a throughput of approximately 1.07 million TEUs is reached.[3] However, if a CAGR of 6.39% is used, in line with the twenty-year average, this throughput of 1.07 million TEUs is reached in early 2024, six years earlier. Over 60 face-to-face interviews conducted by InfraNomics with industry representatives in WA unanimously supported the development of a new port in Kwinana sooner rather than later and actual growth rates support this view.

If the maximum capacity at Fremantle Port is reached six years earlier than the Westport Taskforce is forecasting, what do we do? Even if the design and approvals process commenced tomorrow it is unrealistic to expect that a new port would be fully operational in less than five years – coincidentally, not before 2024. It seems WA has a serious port infrastructure problem that won’t be solved by the band-aid infrastructure solutions that are currently being discussed.

It is worth noting that there are three opportunities for a change of WA State Government between now and 2030. The Liberal party has already announced their plans to sell Fremantle Port. The Nationals had the courage to say no to the Fremantle Port sale last time, what will happen next time?

It should also be remembered that sales of ports typically come with exclusivity clauses preventing the building of a new port in close proximity. If Fremantle Port is sold but then it reaches physical capacity and there is an exclusivity agreement preventing the construction of another port in a logistically convenient location – such as Kwinana - what do we do?

Ports are not short-term projects

In Deloitte’s defence, we have heard that the Trade Forecasts engagement Scope of Work was so restricted that a preconceived answer was presented which is consistent with the past, even though the facts may have changed. Was sufficient local work completed to adequately underpin the findings? In who’s interest is it to delay the development of a new port in Kwinana by using a 2.8% CAGR?

Unfortunately, ports and supporting infrastructure are not short-term projects. Instead, one day, in the not too distant future, there is a high risk we will wake up to find that that the port is maxed out and industry growth will stop cold until a new port is planned, approved and developed – impacting businesses and industries worse than it does now. In the meantime, WA misses out on economic development, growth opportunities and jobs.

Asset sweating or new build?

The current strategy for increasing throughput for Fremantle Port appears to rely on a kaizen-style continuous improvement process. The objective of continuous improvement is to squeeze performance out of an existing asset in an attempt to defer capital deployment. Kaizen typically comes with some low hanging fruit which brings some early efficiency improvement wins. The risk with kaizen is sometimes the achievable efficiency gains are overestimated and maximum capacity is reached well before forecast, which would leave WA exposed and unable to grow until a new port is developed.

Asset sweating is when the efficiencies of an existing asset are increased in an effort to postpone building (and paying for) new infrastructure. When a strategy of sweating an asset is deployed the idea is to run with as little latent (unused) capacity as possible. When an asset such as a port has little latent capacity there is very limited room for the development of new industries and exploiting new trade and business opportunities, thereby restricting growth, jobs, and State development.

It is frequently promoted that Fremantle Port has additional capacity as we are still a long way off from reaching the theoretical maximum capacity of 1.2 million TEUs per annum. [4] It is true that the number of TEUs through Fremantle Port can theoretically be increased, however this increased throughput will occur at an increasing marginal cost. Increasing marginal costs means the port has reached economic capacity. Kaizen follows the Pareto principle which means the last 20% of the efficiency gains are typically going to require 80% of the investment. The sheer cost of adding in new bridges, raising transmission lines, deepening the harbour, upgrading facilities, train subsidies, etc, clearly demonstrates the economic capacity for Fremantle Port has been reached.

Fremantle Ports is going to find that whilst they may technically be able to achieve a certain throughput the cost incurred to reach that capacity may very well be so high that the additional capacity is not economically viable, meaning this money will be better off being spent on a long term solution, not propping up a short term solution. Committing to squeezing every possible TEU out of Fremantle Port also means that by default we are back to considering a more expensive Roe 8 and Roe 9 Mark II solution.

What is so wrong with building a new modern port?

What if WA had a port that rivalled Singapore, a so-called 5th generation port? Even better, what if WA built one of the world’s first 6th generation ports, with an ability to serve 50,000 TEU vessels of 20 meters draught; a semi- or fully-automated container terminal; strong hinterland transport links that don’t run through the middle of residential developments and tourism destinations?[5] The Westport Taskforce recognises that in theory Fremantle Port could be upgraded to handle 13,000 TEU vessels. While 13,000 TEU ships were state of the art in 2006, modern container ships are over 20,000 TEU. The budget for this proposed 13,000 TEU upgrade is greater than $1 billion. Is this money better spent on extending the life of an outdated Fremantle Port or on new, state of the art port facilities? Why is there no mention in the WWHFSF report of how much these Fremantle port upgrades will cost and the on-costs to consumers and industry? Where is the business case?

What if WA was no longer limited to accepting ships with a draught less than 14.7m? Would it mean that ships no longer had to go via Singapore to have containers destined for WA decanted from bigger ships to smaller ships? Would it mean that the direct trade options available to WA would increase?

What would happen if WA aimed to be one of the best ports in the world, not just the best port in Australia? We’ve seen the recent advertisements comparing Fremantle Port to its Australian counterparts. Why aren’t there any performance comparisons of Fremantle Port to WA’s main international trading partners? What would happen if WA planned for a future of innovation and growth, not just a future of a mediocre status quo?

Conclusion

The Westport Taskforce is doing some very important work regarding the social and community impact of a new port but this is only part of the picture. The most important part of the port discussion should be the economic and social impact to the state as this has much wider ramifications. Isn’t sustainable economic development that creates high paying jobs now and for our children central to the Government’s strategy for the State? This can only happen if the supporting infrastructure is internationally competitive and modern.

The Westport Taskforce recently framed the issue of new port development as a logistics issue.[6] Ports are not solely about logistics but should be considered as tools for industrial growth, strategic industrial hubs and property development. The value is not in solving short term logistics issues but developing a region that competes globally. Fremantle is logistically restricted with a lack of industrial land and any improvements are expensive and commercially questionable. Fremantle Port is a stranded asset in metro suburbia created by questionable planning decisions of the past. Why do we want to continue making the same mistakes?

The curious 2.8% is not just a number tucked away in a report. This innocuous number could influence WA’s ability to be a global trade powerhouse for the next 50 years and the risk of getting this number wrong will have a huge impact on WA’s future. If WA’s economic growth continues to be stymied through poor planning decisions that could have so easily have been avoided, how will we explain this to ourselves and to our kids?

[1] https://treasury.gov.au/publication/2015-igr/

[2] As calculated by InfraNomics from Fremantle Ports annual reports TEU figures.

[3] Based on InfraNomics replication of TEU forecasts using a 2.8% CAGR.

[4] Fremantle Ports Annual Report 2011/12

[5] https://www.researchgate.net/publication/324497972_FIFTH_AND_SIXTH_GENERATION_PORTS_5GP_6GP_-_EVOLUTION_OF_ECONOMIC_AND_SOCIAL_ROLES_OF_PORTS

[6] Business News Ports and Transport Special Report, Feb 2019.

Director’s Update

InfraNomics has seen a very busy 2018, and I’d like to discuss some of the topics I feel will shape the near future of our State. These include Industrial Clusters, Market-led Proposals, the Westport Taskforce Report, and the Just Transition Authority for Energy and Port Workers.

Industrial Clusters

The Lithium Valley WA delegation to Europe has been scheduled for April 2019. The focus of the delegation is to develop and build on relationships with European companies in the new energy materials industries, including battery manufacture, assembly, retail, and recycling industries. Trade delegations to Asia and the US are being prepared. It is expected that foreign company visits coming to Kwinana in 2019 will significantly increase, up from over 25 visits in 2018.

The development of the Lithium Valley cluster is now emerging from stage one of its development. The recent industry event hosted by Dassault in Henderson showed a 3D impression of how the Lithium Valley cluster could look like and operate in the future. The Factory of the Future battery and cell projects are well underway and will be made public in 2019.

Market-led Proposals

In 2018, the Department of Premier and Cabinet released its draft Market-led Proposals policy for public consultation and feedback. Market-led proposals are key to opening up WA to new private sector infrastructure projects as they provide an environment and project execution pathway that rewards innovative thinking. Without market-led proposals, industry is sensitive to introducing new ideas, projects or facilities, as government is obligated to go to an Expression of Interest process that effectively shares valuable intellectual property from the project originator for free. Subsequently, there are no rewards for innovative thinking and the opportunity to build innovation infrastructure is wasted. In turn, when there is global competition for capital, this private sector investment goes elsewhere and WA misses out on economic and social development. Market-led proposals are not only common elsewhere around the world, but WA is the only Australian state or territory without a market-led or unsolicited proposals pathway. Although a draft policy was released earlier this year the final version has yet to be implemented. Until WA implements a market-led proposals policy the state will continue to miss out on valuable infrastructure investment.

Westport Taskforce Report

After 15 months, the delayed Westport Taskforce report was released this week and revealed that multiple options are still being evaluated. Perhaps the reason for the delay is that it is exceedingly difficult to find a political solution to a commercial problem. Our commentary and analysis of the report will be released to key clients to target the opportunities that now present themselves.

Although there are many options on the surface, once the options are viewed from the perspective of what is the long-term solution that best supports WA’s current and future export industry, the filter of international competitiveness will identify one clear solution. Until then we wait: the unrealised potential of the Western Trade Coast, limited employment opportunities and adverse economic costs are collateral damage.

Fremantle inner harbour becoming a cultural and tourism centre for the Indian Ocean Rim will just have to wait, as will the benefits of the waterfront transformation. InfraNomics’ Trade Flow forecasts completed over 15 months ago were radical at the time and conflicted with existing government forecasts. However, time has proven that these forecasts are remarkably accurate and show that top-down macro desktop analysis by itself cannot compete with comprehensive bottom-up industry reviews.

InfraNomics’ work in drones, sky logistics, and how data is changing infrastructure design, building, and operations has given us insights that show how technology will profoundly impact Westport planning in the coming years. These insights are not publicly available and it remains to be seen how the Westport Taskforce interprets the future of trade in WA.

Just Transition Authority for Energy and Port Workers

In November, Opposition Leader Bill Shorten announced that a Federal Labor government would create a Just Transition Authority (JTA) as a statutory body to oversee Australia’s transition from fossil fuels to renewable energy. A just transition requires a holistic approach that considers economic diversification, support for workers to transition to new jobs, environmental remediation, and inclusive processes that also address equity impacts for marginalised groups. Fremantle port workers should also be included in the JTA so that the outer harbour can evolve to become a sustainable, internationally competitive port. This minimises the impact of modernising the outer harbour and the economic and social impacts on communities are reduced.

Innovate Australia Awards Recognise Lithium Valley

Innovate Australia has recognised Regional Development Australia – Perth (RDA-Perth) with the Industry Leadership in Innovation award in December 2018. Key to this win was the report Lithium Valley: Establishing the Case for Energy Metals and Battery Manufacturing in Western Australia. The report was commissioned by RDA-Perth and was co-authored by InfraNomics.

We have been delighted that the report has received significant state, national and international attention and resulted in global recognition of Western Australia as a key alternative supplier of products along the full new energy materials value chain.

The Lithium Valley report has also been archived by the National Library of Australia as it is considered to be of national significance and lasting cultural value for future generations.

Perth Children’s Hospital

On a personal note, my little boy who is 14 years old, almost died in November. Weakened by Influenza B, he was succumbing to septic shock from an opportunistic bacteria infection via his throat. The attack was so simple and out of the blue but within hours he was fighting for his life. Miraculously he survived. If it were elsewhere in the world or 20 years ago I don’t think he would have made it. Without the outstanding doctors and nurses, the most modern of health facilities, and world-class training, my boy would have died. I’m very proud of the WA health system. In this case I will remember the quality long after the price is forgotten.

Final Message

It has been satisfying to watch the emergence of the transformational new energy materials opportunity and the changing mindsets from shipping rocks to capturing increased value from finite raw materials. WA has come a long way in recognising just how significant the development of the new energy materials industry is to the future of the state and we still have a long way to go to realise this opportunity.

Some people limited in ambition, thought, and courage have advocated that WA should be cautious and “play to our strengths” - so let us do just that. Let us use our pioneering and entrepreneurial DNA to become a world leader in developing a new industry. Let us use our world-class academic and research institutions and highly skilled workforce to turn WA into the global hub for new energy materials. Let us utilise advanced manufacturing technology to build a sustainable future for our children.

2019 is going to see even more exciting industry growth for WA on the back of new big data technologies: data collection, data science, and data management. Data is the future and the company that manages their data the best will win.

WA’s future is limited only by our imagination. If you think it can’t be done then please get out of the way and give those that give think it can be done a clear shot!

We wish everyone a Merry Christmas and festive period. Our best year is next year and we hope yours will be too.

Boorda

Cameron

Most of us think of drones as remote-controlled flying toys that will be appearing under many Christmas trees in a few weeks’ time. These drones, typically referred to as consumer drones or hobbyist drones, are the smallest part of the drone market. “Drones” actually refers to a much broader group of remotely operated vehicles used in space, sky, land and sea applications. People are becoming increasingly familiar with drones as a device but there are still significant gaps in understanding why drones are so important for the future.

The most important thing to understand is that drones are a tool for gathering data, and in that context the applications of drones are many. Drones will play an increasingly important role in many companies in the not-to-distant future, with many applications for drones not even envisaged yet. Drones are already used to collect data in the following fields:

Aerial photography2D and 3D survey and mappingEmergency responseAgricultural surveyingEnvironmental and weather trendsCondition monitoring and inspectionSecurity and surveillanceTelecommunications

Drones are capable of capturing ground and structure survey data faster and more accurately than planes or satellites. They also offer significantly greater flexibility in their deployment applications as they have greater manoeuvrability and can operate over a much wider vertical range.

Whilst drone hardware is an important and growing industry, the big opportunity is for WA to be a world leader in data. The field of data science is dedicated to turning this data into information and knowledge through the use of algorithms and analytics to organise the data and identify trends, patterns and relationships. It is this application of algorithms and analytics that is then the foundation for artificial intelligence.

InfraNomics is working with Murdoch University and Regional Development Australia - Perth to develop Australia’s first DroneHub at Whitby Falls, near Jarrahdale. DroneHub is an industrial cluster that will provide industry, government, academic institutions, and researchers the opportunity to deploy, operate and test drones. DroneHub will provide industry with the facilities for data capture and management and academic institutions with the facilities to undertake R&D, commercialisation, and adoption of technologies that enhance a drone’s capacity to collect, store, and share data. DroneHub will also provide training, testing, and certification facilities and programs for industry.

DroneHub will be a centre of excellence for a wide variety of industries such agriculture, oil & gas, resources, emergency services and defence. InfraNomics will be engaging with industry and academia early in 2019 to develop this world-leading innovation hub. Stay tuned for future updates!

For more information please contact Angela Elliott +61 450 556 533

Global access to information, experience and new ideas are driving a global movement where people of all ages can design, develop and produce their creations. Anyone can be an inventor and manufacturing is becoming tailored, smaller scale and localised. Thanks to affordable technology and global interconnectivity individual makers can launch smaller companies to manufacture and market their products. WA, the only state founded by free settlers, is Australia’s entrepreneurial capital, and it gives us an unparalleled opportunity to take advantage of.

Entrepreneurism is so pervasive in WA that it is taken for granted - often one only realises how entrepreneurial WA is after observing the lack of entrepreneurialism elsewhere. After decades of east coast focus, the tyranny of distance is now reversed and WA is now closer to its markets than the majority of Australia. Perth is no longer remote, and through globalisation, is in the ‘Goldilocks zone’. The global shift in industry is transforming how we learn, shop, work, and interact. Here are several ways this ‘World of Makers’ impacts WA:

No restrictions

These days there are very few restrictions on producing anything anyone wants. Parts, components, software, systems, etc, can all be purchased from specialist firms and assembled into something new, or even 3D printed. Capital for investment can now be sourced from around the world. It really comes down to the drive and imagination an individual has.

Jobs and Economic Growth

The number of world-class companies that originate from and/or operate in WA are truly astounding considering the population size. The list is long and extensive. Also coming through are a continuing multitude of new companies that drive economic growth across many sectors. WA is a world entrepreneurial hotspot and these new industries companies are starting to replace traditional businesses. One homegrown example is a company that generates digital twins of production facilities that will fundamentally disrupt the EPC/EPCM contracting industry within the next 10 years. Transformation is occurring across all sectors. It is a question of when these changes will occur rather than if; ignoring these changes is not an option. The industry players that remain will be those that embrace the changes and adapt their business models accordingly.

Collaboration

Makers are sharers. It is extraordinary how much information is on the internet about anything, from how to build your own drone through to building NMC battery cells. It is human nature to want to collaborate. We collaborate because it is a disadvantage not to. Those who insist on working in isolation get left behind or produce products that are not compatible with others.

This age of open source. Companies need to be flexible and nimble in incorporating the latest and best technology to achieve a vision. This is a complete reversal of traditional manufacturing. This new mindset is best developed in an environment of similar people and companies, hence the rise of industrial parks, specialised clusters, incubators, and collaborative workspaces. This is what InfraNomics is building at Lithium Valley and DroneHub and it will change the face of WA.

Education

Is the traditional education model still relevant? A lot of school-based learning is obsolete the day the pupil leaves, so perhaps it is time to review whether rote learning is still the most appropriate teaching model for our children. The most important skills our children should leave school with are the ability to learn how to learn and the understanding of how to apply knowledge. There is an opportunity to engage more closely with schools and universities to incorporate pupils into the “maker” ecosystem. Students can participate in an environment that encourages them to generate new ideas and develop practical skills from real life experiences. This can only have a positive impact on the community.

Western Australia

WA is ideally positioned in the world of makers due to its bounty of raw materials, ideal location, space, high quality workforce, western legal system, and outstanding lifestyle options. In a world of makers, anyone can be an entrepreneur, inventor, and innovator. The collective creativity being generated around the world will dramatically transform society in a positive way and WA is in the middle of it.

For more information please contact Cameron Edwards +61 434 714 377

Further to the release of the report Lithium Valley: Establishing the Case for Energy Metals and Battery Manufacturing in Western Australia in July, 2018, InfraNomics has been working with industry to develop the Lithium Valley industrial park, an industrial cluster of new energy materials companies.

Some experts posit that industrial clusters must happen organically. Whilst industrial clusters can form this way, for all stakeholders to realise maximum value of an industrial cluster there needs to be a strategic, coordinated effort to develop it. Often this takes the form of an industrial park, with the most successful industrial parks master planned communities that have taken into account the industry, clients, and markets that the industrial park is intended to serve.

Industrial parks offer their residents numerous advantages, such as:

Companies often have more than one option when deciding where to locate their facility. Sometimes these options are just various sites within the same geographic area, but sometimes these options include different states or countries. This means that WA needs to ensure there is a solid business case for locating in WA. It is common for countries trying to establish or attract new industry to offer a series of incentives to potential companies. These incentives often include things like free or subsidised land, tax breaks, credits or holidays, or exemption and reductions in import/export duties. These incentives may be offered upfront to interested parties or negotiated on a case-by-case basis.

In Australia, tax breaks and free land are not commonly offered incentives, so to remain competitive we need to consider other options that will cost the State significantly less in the long run but still provide companies with a strong business case for locating their operations in WA. This is where streamlined approvals can provide WA with the edge it needs to stand out from the crowd as a desirable place for investment.

By obtaining pre-approvals for an industrial park, WA can offer potential industrial park residents a level of time and cost certainty regarding approvals that can have a significant material impact on the decision to develop a facility. Also, reducing approvals uncertainty risk improves a company’s ability to complete financing activities and achieve Final Investment Decision.

Making the approvals process easier does not increase the risk that approvals conditions will not be met. In fact, making the approvals process transparent will increase the likelihood of approvals compliance. It will also show that WA understands and supports the development of local industry.

Lithium Valley provides WA with a tremendous opportunity to apply world’s best practices to the development of an industrial park for the new energy materials industry. InfraNomics is working with individual companies, industry, and all levels of government to make sure that WA maximises the benefit from this once-in-a-generation opportunity to develop a sustainable industry that will provide economic benefit to the state and employment to WA residents for decades to come.

If you have any questions on Lithium Valley, the new energy materials, industrial parks, or how InfraNomics can assist your companies with their growth ambitions, please contact us today.

For more information please contact Angela Elliott +61 450 556 533