Ross talks about infrastructure waves in his previous post, “Studying Infrastructure Waves through Case Histories.”
Here, Ross provides a detailed explanation illustrating New Zealand’s infrastructure construction waves.
If we look at this New Zealand case study, so here’s 1965, we got this peak of water installation expenditure. So this is water reticulation.
And then around 2005, we’ve got another peak of expenditure. So this is dollars. You can see that okay, right? We’ve got “Water Treatment.”
Can anybody tell me, 1960 odd water pipe, how long does it last for? You know, 80 years?
I think the figure that we’re using nationally is about 80 years. So 1965 plus 80, 2045.
So in 2045, we going to have a peak or peak of reticulation replacement.
Now the water treatment plants, how long do they last for? Do you know? And wastewater treatment plant? 30 to 40 years.
Not the physical civil works, but the process trains, and the permits for extracting water or treating water, so your resource consents, or your treatment permits and the process trains.
So the physical civil works might last 100 years or more, the concrete, but the process train that you would be replaced with new technology lasts 30 or 40 years.
Oh 2005, so what’s happening is we’ve got a double peak from two periods so the 1965 expenditure on reticulation and pipework and this is in utilities in New Zealand. So probably on the average around about 2000 – 2005 treatment upgrading all hits as around about 2045.
What else is happening in 2045 in the New Zealand economy? Do you know? It’s called the baby boom retirement.
So all those children who were born after World War II, all retire out the economy during the period 2040 or 2030 to 2045 – 2050, that’s the peak of it in that 20-year period.
So we’ve got down here, we’ve still got a lot of retirement. Now when the people retire, they have less money to spend. They are more sensitive, because of fixed incomes, to extra costs, and this is the problem in utilities in New Zealand.
So at the moment, we’ve got projections that say that might be NZ$20 billion or it might be NZ$30 billion or it might be NZ$40 billion dollars. This is the future projection.
So $20 billion, maybe $40 billion and the amount of that are determined by how long those assets last, how long we can make them last, and can we spread out the treatment at a time when we think our economy will have fewer people prepared to pay for stuff.
And that’s driving a whole heap of government action and legislation change and requirements for better information.
So transportation has got different issues but it’s reasonable, in terms of expenditure in New Zealand economy, reasonably steady state.
The utility stuff is the stuff that’s giving us issues because if you think about the Christchurch earthquake restoration, that was about 40 billion. So it’s the same sort of scale of that big effort that is still ongoing.
And when you start looking at other economies, so that’s the big one for New Zealand, that’s the utility replacement and affordability of it.
If we were to come up a little bit with say, Korea. Down here we may have got some Koreans here. So Korea, we can say 1960 to 1975, for roads, they’ve got a big peak for road construction and buildings.
Seoul was basically flattened during that period. And we’ve got roads as 60 years and the buildings you’ll spread them out a little bit wider over a period of time because we have new buildings being built since then, stuff like that.
But you go, hey hang on a minute, concrete roads, 60 years Theuns, or would you give it longer than that, 80 years maybe? Yeah, 60 is pretty good.
So you go hey, 2020 or maybe 2030 in Korea.
Now the interesting thing and the reason I’m telling you this is that everywhere you look, you start running into the same sort of stuff.
China, Europe, there’s always these infrastructure construction waves coming through.
This is a really good thing to look for when you’re doing your strategic planning – as the replacement is always more expensive than the initial build.
And the reason is, when you do an initial build, you’re often doing it when you’ve got surplus labor and that is cheap.
So like Korea, after the Korean War, they had all these people that were displaced and needed the work.
They were prepared to work for a roof over their head and food, which was basically what they did work for – because your alternative is no roof over your head and no food.
I mean given those two nice alternatives, so we do these works if you feed me and provide me with shelter.
Now Korea is recently a high-value economy.
So, the interesting thing about China is the same thing is happening.
Wages are going up in China and when they are going to do the rebuild in 30, 40 or 50 years’ time, the value of the economy would be so much more.
So, the cost of replacing the assets would be so much higher.
The other thing is when you’re doing a new build, nobody is using the asset. Okay, you build a new road, you don’t open it until it’s finished. So, you can just get on and build a road.
When you go to replace a road, everybody is already using the road. So, you’re imposing cost from diversion, from staging work or whatever.
So, it’s intrinsically a lot more expensive to replace assets than to build new ones.
Okay, so that’s infrastructure waves. Something to really watch out for strategic planning or in any infrastructure asset management planning. If we come back to…