Australia: Infrastructure Reform in Queensland Part 2 – fixing the framework for developers and financiers

Last Updated: 29 July 2012
Article by Daryl Clifford and Jo-anne Atkinson

IMPORTANT INFRASTRUCTURE PROJECTS IN QUEENSLAND ARE BEING HAMPERED BY OUTDATED LEGISLATION WHICH IS IN URGENT NEED OF REFORM

The legislative framework was designed for a bygone era where government was virtually the sole supplier of infrastructure. Its failure to accommodate the increased role of the private sector in major projects is affecting both government and private entities across a variety of gas, water, electricity and rail projects.

Part one of this article looked at the generic conflicts and challenges experienced by most industry sectors in trying to operate under the current framework. In this second instalment we turn our attention to the specific challenges faced by the water, gas, electricity and rail sectors and also the major project risks for proponents and financiers of linear infrastructure.

WATER, GAS AND ELECTRICITY PROJECTS

Securing easements for infrastructure assets such as power lines, water pipelines and gas pipelines is a key challenge for private sector projects. While there are provisions in the legislation to secure easement corridors, those provisions have been interpreted so that they can only be used where the easement is to provide a public utility service.

This creates problems for private infrastructure across a range of sectors. Typical examples include:

  • Bulk water transportation: Increasingly water projects are being developed for specific customers (such as a single mine). In this case, the supplier is not providing a public utility service and thus may not qualify as a public utility provider for the purpose of holding a public utility easement/easement in gross.
  • Bulk transportation of gas: Legislation was introduced to Parliament last year to amend the provisions of the Petroleum and Gas (Production and Safety) Act 2004 (Qld) to provide for the holder of a pipeline licence to be deemed to be a public utility provider and hold a public utility easement. Those amendments have lapsed. It is not clear when or if those amendments will be reintroduced into Parliament. Furthermore, the amendments, if reintroduced and passed, will only apply to limited forms of infrastructure.
  • Transmission and distribution of electricity: While the Electricity Act 1994 (Qld) provides a mechanism for the compulsory acquisition of easement corridors, those provisions have not been made available for private projects.

As noted in Part one of this paper, there does not seem to be any policy basis for requiring an easement in gross to be for the purpose of providing a utility service to the public. We recommend this condition be removed from the Land Act 1994 (Qld) and the Land Title Act 1994 (Qld).

We also recommend that the Minister responsible for the Electricity Act 1994 (Qld) provides guidance (and greater flexibility) as to the types of projects that can be authorised to acquire land under section 116(1).

RAIL AND LIGHT RAIL CHALLENGES

Existing rail corridors and new rail corridors face issues because there are gaps in tenure over water courses and some road crossings. There is a particular problem with non-tidal boundary water courses. This raises issues for the accreditation of those railway operations under the Transport (Rail Safety) Act 2010 (Qld).

The provisions for light rail currently operate on the basis of a perpetual lease/?sublease model. This may not be appropriate in circumstances where much of the route of the light rail track will be shared with road vehicles. The concept of a perpetual lease is inconsistent with shared use of a road. Other models should be investigated, including the use of a statutory licence (as contemplated by section 355A of the Transport Infrastructure Act 1994 (Qld)).

PROJECT RISK CONSIDERATIONS FOR PROPONENTS AND FINANCIERS

The private sector has, for some time, been integral to the development and financing of private infrastructure. Nowadays, private companies are also increasingly involved in developing and financing public infrastructure. This evolution towards more private sector involvement in projects has exposed potential issues for financiers under the current legislative framework.

Step in rights may not be possible

A step-in clause, as the name suggests, permits a financier to 'step-in' and take over a development project if the project proponent defaults. Financiers generally want step in rights as they provide a level of security that the project will be completed despite the proponent defaulting.

In an infrastructure context, to step in and take control of the infrastructure and the easement corridor, the financier would need to be eligible to hold a public utility easement. This would require recognition under the Land Act and the Land Title Act 1994 (Qld) as a "public utility provider". That is, the financier would need to be approved by the Minister "as suitable to provide a public utility service".

Even if this approval can be obtained, it is a process which will delay the financier.

The restrictions on the "public utility provider" status will also hinder the financier's ability to require a transfer of the easements to a prospective purchaser of the infrastructure. Any purchaser would also need to obtain this approval.

As noted earlier, the lack of any policy basis for requiring an easement in gross to be for providing a utility service to the public suggests this condition should be removed from the Land Act 1994 (Qld) and the Land Title Act 1994 (Qld).

No ability to mortgage

Current requirements do not allow a mortgage to be registered over the proponent's interest in the easements.

In the same way that the State needs to review the existing statutory framework to provide for the creation of sub-easements (as set out in Part one of this paper), the State needs to facilitate the creation and registration of mortgagee interests.

Otherwise, the only way a financier can protect against the termination of an easement is to require the proponent to put in place tripartite agreements between the landowner, the proponent and the financier. This may not be practical. There are also difficulties if the landowner sells the land.

CONCLUSION

There are clearly a number of issues that must be addressed to reform tenure used for linear infrastructure projects in Queensland.

Many of the issues are well known and require urgent attention.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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