As slowdown looms, Pilbara will need networks to thrive

Infrastructure in the Pilbara is a mixture of private and public owned assets. AAP/Will Russell

The Pilbara has had a remarkable boom in recent years, but with the current slowdown comes questions about its long-term future. The need to diversify the local economy is obvious, but how do you do this? In our report, Pilbara 2050 we have explored how networked infrastructure could help in this transition.

The Pilbara’s energy generation, transmission and rail systems are operated separately by mining, petroleum and energy companies on a combination of gas and diesel with very little grid present. The result is high costs and carbon emissions. Connecting the existing power infrastructure into a grid would not only make a more resilient system, but it would enable electrifying of the railroads and mining pits which would reduce everybody’s operating costs and massively reduce carbon emissions.

Agriculture is emerging as a viable alternative to the region’s mineral resources, now that much more water has been found. But the fundamental question remains: where will power come from and how will bulk goods be transported? Renewable energy has a big future in the Pilbara as the area has the highest concentration of solar radiation on earth. Diesel could be replaced with renewable energy at a much lower cost. It would also create the pre-conditions for other more energy intensive industries to establish themselves. Without it, they will likely choose other regions to set up shop.

Attracting new businesses requires a lower cost base

A study by Regional Development Australia found the cost of doing business in the Pilbara is 40% more expensive than Perth and even higher when compared against other parts of Australia. Much of this cost is due to a premium placed on the price per kilowatt hour of electricity from more expensive inputs. It would seem sensible to try and find mutually beneficial solutions like the completion of power grids and shared rail systems to lower the costs of operating in the region.

These ideas are not new, but historically mining and petroleum companies prefer to just look after their own power and rail systems. This week, former Western Australian Labor MP Larry Graham said “private companies that built and own the railways will not, and should not, put their vital lifelines under someone else’s control”.

This raises important philosophical questions: do governments have the requisite capabilities to manage the infrastructure issue? And to what extent is competition affected by creating integrated networks?

For answers, we have looked at other international locations that have faced a similar predicament and either through government intervention or market-based decision making, have worked to link common networks to the benefit of all.

Network options

State sharing

The Central Electricity Board was established in 1926 in the UK to standardise the nation’s electricity supply. Until then, the industry consisted of more than 600 electricity supply companies and different areas operated at different voltages and frequencies. The Board established the UK’s first synchronised AC grid, which by 1933 covered most of England. In 1938, this started operating as a national system called the National Grid. The Board was dismantled when the grid was nationalised in 1947.

Private integrated

In the airline industry, a codeshare agreement is an arrangement where two or more airlines which compete for the same markets, form a strategic alliance to share the same network routes. A ticket can be purchased from either carrier, but the flight itself is actually operated and managed by only one of the participating airlines. Under such agreements, costs are shared between the carriers who might otherwise struggle to make the flight route economically viable on their own.

Private and government integrated

The London Underground opened in 1863 and was the world’s first networked train passenger system. It was originally built by private enterprise but nationalised in 1948 and since then has been run under a combination of private and public partnerships.

In the UK, various aspects of the mobile networks are shared, including with the government. In Australia, for example Optus and Vodafone share mobile towers and network coverage to provide better services at a lower cost to customers. Since 1991, cash ATMs are another example of privately shared networks.

Shared value approach

In Canada, the oil sands industry has historically operated with separate parallel entities, ignoring the cumulative environmental impacts of their activities, resisting further environmental legislation and the need to talk to one another. But an approach called Shared Value developed by Harvard professors Mark Kramer and Michael Porter, resulted in Canada’s Oil Sands Innovation Alliance being established, in which major companies have shared more than 560 technologies worth a total of US$900 million.

Getting the public/private balance right

The argument that private companies would - and should not - cede control over access to critical infrastructure is not borne out in these case studies. Despite often cited business concerns around the loss of control and risks to business continuity, evidence suggests that in fact integrated public planning can be extremely cost effective and everybody is a winner.

There can be big benefits for all when you get a proper network going. In the Pilbara, the private sector hasn’t been good at that. Until now, there has been a reluctance to push ahead with utilising the existing electricity transmission infrastructure to create an interconnected grid. The outcome of legal attempts for greater rail sharing has often seen the requirement for sharing lessened.

To secure its future, the Pilbara needs to diversify beyond mining. Will Russell/AAP

Graham also argues that governments have an “inability to operate effectively”. The Pilbara Development Commission and Pilbara Cities has shown government has plugged a great deal of the infrastructure deficit in the Pilbara created from the commodities boom.

At the heart of this debate is whether the private or public sector can deliver best. Governments and business can and do work together well. The biggest functioning networks are always built by an integrated state.

With the right philosophical basis, West Australian problems could be addressed holistically. In the Pilbara, without the creation of mutual networks and benefits of scale, the economic diversification prize will remain illusive.