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Australia – Infrastructure Charges Reform: A Picture Without A Frame.

15 May, 2014

 

Legal News & Analysis – Asia Pacific – Australia – Energy & Project Finance

 

In Brief

 

The much awaited infrastructure charges reforms proposed by the Queensland State Government have been announced. The big news, in terms of a change to the cap on charges, is that there is no news. The current cap on charges remains unchanged. However, the announced reforms:

 

  • propose a ‘fair value charges’ scheme which will see participating local governments levy lower infrastructure charges in return for access to State Government funding for catalyst infrastructure, however further details are required before the impact of this change can be properly understood, and
  • seek to provide certainty in relation to matters such as offsets and refunds which have previously been subject to negotiation with the relevant local government or distributor-retailer, by way of the legislative amendments set out in the Sustainable Planning (Infrastructure Charges) and Other Legislation Amendment Bill 2014 (Qld).

 

Proposed Reforms

 

The State Government’s ‘long-term’ proposed reforms to infrastructure charging can be summarised in the following two parts:

 

  1.  A proposed ‘fair value charges’ scheme which will unlock access to State Government funding for catalyst infrastructure where a local government adopts and applies the ‘fair value charges’ in its local government area. However, this part remains a policy announcement as the State Government is yet to release the necessary detail for its proposal.
  2. The Sustainable Planning (Infrastructure Charges) and Other Legislation Amendment Bill 2014 (Qld) (Bill) which was introduced into Parliament on 8 May 2014. It makes amendments to the existing infrastructure charging regime in theSustainable Planning Act 2009 (Qld) (SPA) (and the South-East Queensland Water (Distribution and Retail Restructuring) Act 2009 (Qld) (SEQ Water Act) for distributor-retailers) which are aimed at clarifying, simplifying and resolving some of the issues routinely faced by developers when dealing with infrastructure authorities in relation to the funding and supply of infrastructure for development.

 

Summary Of Key Proposed Reforms

 

The Bill provides for reforms to infrastructure funding and supply under the SPA which will no doubt be welcomed by the development industry. The below table sets out the key reforms of the reform ‘package’ including the ‘fair value charges’ scheme (notwithstanding that further detail is required to properly understand the impact of the proposed reform).

 

Item Current Position Change Comments
Adopted Charges Infrastructure charges are capped under the State Planning Regulatory Provision (Adopted Charges). Local governments may adopt the lower ‘fair value charges’ in return for access to State Government funding for catalyst infrastructure. The ‘fair value charges’ scheme is only a policy announcement at this stage and is not part of the Bill. It will have to be the subject of further legislation, and details of the scheme are very limited at this point in time. See our further comments which follow this table.
Infrastructure charges may be imposed on development, regardless of the extent to which the development will place additional demand on trunk infrastructure, with a local government’s charges resolution identifying the arrangements for applying a discount for existing usage of trunk infrastructure. Infrastructure charges may only be imposed for the additional demand on trunk infrastructure that will be generated by the development The discounting of infrastructure charges to provide a ‘credit’ for existing usage of trunk infrastructure is already applied by many local governments. However, this amendment provides a statutory right to a ‘credit’ for existing lawful uses and other development which may be lawfully carried out without the need for a further development permit.
Payment Triggers An infrastructure charge is to be paid ‘before’ the local government approves a plan of subdivision, a certificate of classification is issued, or the change of use happens (as the case may be). The infrastructure charge must be paid ‘when’ the relevant trigger occurs. This seeks to remove the confusion which has existed as to the timing of the payment of infrastructure charges. For example, it is now clear that a local government may not insist on payment of infrastructure charges triggered by the approval of a plan of subdivision until the approval actually occurs. However, how this will operate in practice may be more complicated.
Offsets And Refunds If a developer is required to provide trunk infrastructure that will service another premises, there is an entitlement to an offset, and if applicable, a refund. However, the terms of an applicable offset or refund, including the value of the infrastructure, must be agreed between the developer and the local government. The entitlement to an offset or refund remains but an infrastructure charges notice (ICN) must now include details of an applicable offset or refund. 

This includes the value of the infrastructure for an offset or refund (which is based on the establishment cost). If a developer disagrees with this value, it may require the local government to apply the actual value (as opposed to the ‘planned estimate’ or ‘pre-market estimate’) using the methodology the local government must set out in its charges resolution.

 

This is a real positive for developers given that difficulties are routinely encountered in agreeing the appropriate value of infrastructure with an infrastructure authority. 

Disappointingly however, the Bill does not provide any direction on the timing of refunds (which are still to be agreed between the developer and the local government).

 

Conditions Requiring Infrastructure Generally, a local government may impose a condition on a development approval requiring trunk infrastructure where the trunk infrastructure is: 

  • necessary and not adequate,
  • necessary and not yet available,
  • identified as being located on the premises.

 

A local government may no longer impose a condition requiring trunk infrastructure on the basis that the trunk infrastructure is identified as being located on the premises the subject of the development application. This change will make it difficult for a local government to require the dedication of land for open space. Such trunk infrastructure would need to be necessary to service the premises.
Conversion Application There is no statutory right to make an application to a local government to convert non-trunk infrastructure required in a condition of approval to trunk infrastructure.  An applicant may apply to the local government to convert non-trunk infrastructure to trunk infrastructure where a condition requiring non-trunk infrastructure has been imposed on a development approval. 

A regulation may prescribe the criteria to be considered in deciding a conversion application. 


An applicant may appeal to the Building and Development Committee or the Planning and Environment Court against a refusal of a conversion application.

 

There have been instances in the past where infrastructure was in the nature of trunk infrastructure, but was technically considered non-trunk infrastructure because it was not identified in the local government’s Priority Infrastructure Plan or Adopted Infrastructure Charges Resolution (and therefore not subject to an offset or refund). This reform will address this issue.
Infrastructure Agreements There are no statutory requirements as to how infrastructure agreements are to be negotiated. If parties agree to enter into negotiation for an infrastructure agreement, in negotiating the infrastructure agreement each party must act in good faith. The obligation to act in good faith in negotiating an infrastructure agreement will require the parties, for example, to: 

  • disclose relevant information in a timely way,
  • consider and respond in a timely way to the other party’s proposals, and
  • give reasons for each response.

 

 

The transitional provisions of the Bill provide the following:

 

  • the unamended SPA will continue to apply to existing infrastructure charges notices (all types) and levied charges,
  • the provisions in the Bill will apply to existing undecided development applications and permissible change applications.

 

The Bill proposes amendments to the SEQ Water Act to provide for equivalent provisions (to those for a local government under the SPA) for distributor-retailers for infrastructure funding and supply in relation to water approvals (the new approval regime proposed by the Water Supply Services Legislation Amendment Bill 2014).

 

‘Fair Value Charges’ Scheme

 

The State Government is expected to release the details of its proposed ‘fair value charges’ scheme in the near future. As things stand, there is no mention of the ‘fair value charges’ scheme in the Bill. Therefore, further legislative amendment will be needed to implement the scheme.

 

This scheme will give local governments the choice of adopting and applying the ‘fair value charges’ in its local government area in lieu of the current capped infrastructure charges.

 

The ‘fair value charges’ are expected to generally provide a 10% reduction in residential charges and a 15% reduction in retail, commercial and industrial charges.

 

In return for applying the ‘fair value charges’ in its local government area, a local government will have access to State Government funding for ‘co-investment’ in Priority Development Infrastructure which unlocks new development.

 

Whether participation in this scheme will be taken up by local governments will very much depend on the arrangements set by the State Government in relation to the funding. For example, if the funding from the State Government requires repayment in the future, this will impact on its attractiveness as a genuine alternative to the arrangements in the SPA.

 

Other matters which may impact on the likely participation in the scheme include:

 

  • the size of the pool of funds,
  • how the pool of funds will be apportioned, and
  • whether an application is guaranteed to receive funding if it meets particular criteria (or whether it will be at the State Government’s discretion).

 

It is also foreseeable that certain local governments will find the ‘fair value charges’ scheme more or less attractive depending on:

 

  • the level of development in its local government area,
  • the level of catalyst infrastructure that is needed in the foreseeable future, and
  • the financial trade-offs between participating and not participating in the scheme.

 

The value of the ‘fair value charges’ scheme will no doubt be carefully considered by each local government. This is therefore a space to be watched very closely.

 

Conclusion

 

It must be said that the Bill does tidy up some of the areas of the current regime for infrastructure funding and supply which have created difficulties for the development industry.

 

However, we can’t know what the full picture looks like until the State Government releases the details of its ‘fair value charges’ scheme.

 

The State Development, Infrastructure and Industry Committee is seeking written submissions on the Bill by 4:00pm on Friday, 16 May 2014 so that it can provide its report to Parliament by Thursday, 29 May 2014.

 

Submissions may be made either by email to sdiic@parliament.qld.gov.au or by post to:

 

The Research Director

 

State Development, Infrastructure and Industry Committee

 

Parliament House

 

George Street

 

BRISBANE QLD 4000

 

herbert smith Freehills

 

For further information, please contact:

 

John Ware, Partner, Herbert Smith Freehills

john.ware@hsf.com

 

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