AP-144 00 Valuation of Road Infrastructure Assets in Australia and New Zealand

AP-144/00

AUSTROADS RESEARCH REPORT

Valuation of Road Infrastructure Assets in

Australia and New Zealand

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Valuation of Road Infrastructure Assets in Australia and New Zealand

First Published 2000

© Austroads Inc. 2000

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without the prior written permission of Austroads.

National Library of Australia

Cataloguing-in-Publication data:

Valuation of Road Infrastructure Assets in Australia and New Zealand ISBN 0 85588 532 7

Austroads Project No. BS.A.70

Austroads Publication No. AP–144/00

The Austroads Asset Management Reference Group

Mr Paul Smith, DMR Qld (Convenor) Mr John Wilson, VicRoads

Mr Ron Ferguson, RTA NSW Mr Gary Norwell, MR WA

Mr Peter Tymukas, TSA Mr Michael Bushby (until mid 1998), DIER Tas Mr Rodney McGee (after mid 1998), DIER Tas

Mr Peter Bosmajian, DTW NT Mr Leigh Palmer, ACT City Services, DUS ACT

Mr Paul Blair, CDoTRS Mr John Howard, ALGA

Mr Dave Robertson, Transit NZ Dr John McLean, ARRB TR

Project Manager

Mr Michael Bushby, DIER Tas (until mid 1998), RTA NSW (from Sep 1998)

Consultant Mr Laurie Dowling, LB Dowling & Associates, Newcastle, NSW

Published by Austroads Incorporated

Level 9, Robell House 287 Elizabeth Street

Sydney NSW 2000 Australia Phone: +61 2 9264 7088

Fax: +61 2 9264 1657 Email: [email protected]

www.austroads.com.au

Austroads believes this publication to be correct at the time of printing and does not accept responsibility for any consequences arising from the use of information herein. Readers should rely on

their own skill and judgement to apply information to particular issues.

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VALUATION OF ROAD

INFRASTRUCTURE ASSETS IN AUSTRALIA AND NEW ZEALAND

Sydney 2000

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AUSTROADS INCORPORATED Austroads is the association of Australian and New Zealand road transport and traffic authorities whose mission is to contribute to development and delivery of the Australasian transport vision by: • supporting safe and effective management and use of the road system • developing and promoting national practices • providing professional advice to member organisations and national and international bodies.

Within this ambit, Austroads aims to provide strategic direction for the integrated development, management and operation of the Australian and New Zealand road system — through the promotion of national uniformity and harmony, elimination of unnecessary duplication, and the identification and application of world best practice. Austroads is governed by a council consisting of the chief executive (or an alternative senior executive officer) of each of its eleven member organisations.

MEMBER ORGANISATIONS

! Roads and Traffic Authority New South Wales ! Roads Corporation Victoria ! Department of Main Roads Queensland ! Main Roads Western Australia ! Transport South Australia ! Department of Infrastructure, Energy and Resources Tasmania ! Department of Transport and Works Northern Territory ! Department of Urban Services Australian Capital Territory ! Commonwealth Department of Transport and Regional Services ! Australian Local Government Association ! Transit New Zealand

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CONTENTS Executive summary ........................................................ ......................................... v

1. Scope ........................................................................ ......................................... 1

2. Aims ......................................................................... ......................................... 1

3. Background .............................................................. ......................................... 3 3.1. General ........................................................ ......................................... 3 3.2. Valuation of Local Roads ............................ ......................................... 5 3.3. Current action by OECD on valuation of road infrastructure ............... 5 3.4. Land under roads and within road reserves ......................................... 6

4. Asset management and valuation ............................. ......................................... 7

5. Trends in values and costs ........................................ ......................................... 9 5.1. Trends in values .......................................... ......................................... 9 5.2. Trends in costs ............................................ ......................................... 11

6. Current position in Australia and New Zealand ...... ......................................... 14 6.1. General ........................................................ ......................................... 14 6.2. Practices used in valuing ............................ ......................................... 14 6.3. Infrastructure categories valued and reported ....................................... 14 6.4. Land ............................................................ ......................................... 15 6.5. Depreciation methods ................................. ......................................... 17 6.6. The use of asset valuation in Performance Indicators .......................... 19 6.7. Bridge values as a proportion of road infrastructure assets .................. 20

7. Depreciation of road infrastructure assets ................ ......................................... 21 7.1. The meaning of depreciation in accounting terms ................................ 21 7.2. A discussion of depreciation of depreciation in physical terms ........... 21 7.3. Technical obsolescence ............................... ......................................... 22 7.4. Current AARF reviews of Australian accounting practice ................... 22

8. Factors affecting road asset values .......................... ......................................... 23

9. Issues to be resolved in valuation of road infrastructure ................................... 24

10. Benefits of valuation ................................................ ......................................... 26

11. Financial summaries ................................................ ......................................... 27

12. Directions for future action ...................................... ......................................... 28

13. Conclusions .............................................................. ......................................... 29

14. References ................................................................ ......................................... 30

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TABLES

Table 1 Progress by Austroads MAs with reporting road infrastructure valuation information .............................................................. 4

Table 2 Comparison of road sector cost indices in use in Australia and New Zealand ...... 13

Table 3 Road infrastructure categories with valuations in Annual Reports at June 1997 ... 16

Table 4 Depreciation methods in use by Austroads Member Agencies (June 1997) .......... 18

Table 5 Performance Indicators with asset value as an input ............................................. 19

Table 6 Written-down values of roads and bridges at 30 June 1997 .................................. 20

FIGURES Figure 1 The role of valuation in asset management ............................................................ 2

Figure 2 Pavement asset valuation process .......................................................................... 6

Figure 3 A framework of asset value, maintenance budget options and user costs ............. 8

Figure 4 Reported written down values of total road infrastructure ..................................... 10

Figure 5 Reported written down values of bridges .............................................................. 10

Figure 6 Accumulated depreciation as a proportion of replacement value (roads sub-category) ............................................................... 11

Figure 7 Comparison of road sector cost indices in use in Australia and New Zealand ...... 12

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APPENDICES Appendix 1 Charter for Austroads Project BS.A.70 -

The Use of Valuation in Asset Management. Appendix 2 Possible formats for financial data summaries for Australasian roads. Appendix 3 OECD project on Performance Indicator PI12 - Value of Assets

Summary of responses from Australian MAs to OECD questionnaire Appendix 4 Valuation of land under roads and within road reserves - points of agreement. Appendix 5 Summaries of MAs’ road infrastructure asset valuation data. Appendix 6 Checklist for compliance with Austroads 1994 policy. Appendix 7 Current practice of MAs in valuing land under roads and within road reserves, work in

progress, roads, bridges, traffic signals and street lighting, and definitions of bridges. Appendix 8 MR WA Program Performance Indicators using valuation of road infrastructure. Appendix 9 Extracts from RTA NSW 1995, 1996 and 1998 Annual Reports on depreciation. Appendix 10 DIER Tas approach to asset valuation

Summary report following 1996/97 review Extracts from Finance Policy manual.

Appendix 11 Responses to Questionnaire issued with the June 1998 draft of this report. Appendix 12 Extract from VicRoads 1998 Annual Report on depreciation.

ABBREVIATIONS AARF Australian Accounting Research Foundation ALGENZ Association of Local Government Engineers, New Zealand BOOT Build, own, operate and transfer BTE Bureau of Transport Economics (formerly BTCE) CMPI BTE Road Construction and Maintenance Price Index DMR Qld Department of Main Roads, Queensland DIER Tas Department of Infrastructure, Energy and Resources, Tasmania DTW NT Department of Transport and Works, Northern Territory DUS ACT Department of Urban Services, Australian Capital Territory IMEA Institute of Municipal Engineering Australia LGA Local Government Authority MA Member authority (of Austroads) MR WA Main Roads Department, Western Australia PSASB Public Sector Accounting Standards Board QML Queensland Motorways Limited RTA NSW Roads and Traffic Authority of New South Wales SMH Sydney Morning Herald TNZ Transit New Zealand VG Valuer General VicRoads Roads Corporation of Victoria vkt vehicle kilometres of travel

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Executive Summary • Over about the last 10 years, government bodies in Australia have moved from cash accounting to

accrual accounting. As a consequence, government departments have begun to capitalise their infrastructure.

• Valuations of road infrastructure assets were first reported in Australasia in 1990.

• Australian Accounting Standard AAS 29 - Financial Reporting by Government Departments, was issued in 1993, and came into force in 1996.

• AAS 29 requires Government departments to recognise and depreciate infrastructure assets in their annual reports.

• In 1994, Austroads issued a policy and framework for valuation of road assets, entitled Capitalisation of Infrastructure.

• The major road agencies in Australia and New Zealand report annually the value of road infrastructure assets under their control.

• Austroads is supporting effort by AARF and PSASB to develop a policy on the valuation of land associated with road infrastructure.

• It is now appropriate to examine the valuation process to identify how the resulting information can be used to enhance asset management.

• The aims of this report are to: ⇒ facilitate informed discussion on the relevance of road asset valuations to the needs of road

users and to an agency’s ability to deliver road services to meet those needs, ⇒ identify benefits of valuation as an asset management tool, and ⇒ provide a basis for a review of valuation methods for road infrastructure, as proposed in the

Austroads Strategic Plan 1998 - 2001 (Ref 23), by suggesting areas where changes to existing valuation practices would enhance the benefits generated by the valuation process.

• The report summarises the practices of State road agencies in Australia and Transit New Zealand as at 30 June 1997 in arriving at values for road infrastructure and depreciation, highlighting areas of consistency and inconsistency.

• The meaning of depreciation in physical as well as accounting terms is discussed.

• A number of issues are identified where further work is necessary to improve consistency in deriving and reporting valuation information.

• The potential benefits of the valuation process are listed.

• A format is presented for annual financial summaries of national road assets showing valuation, depreciation and investment.

• More study is required, involving road asset management and accounting professionals, on the relative merits of condition-based and age-based approaches to the calculation of accumulated depreciation, particularly for road pavements which represent the largest single component of road asset value and investment.

• The report encourages asset managers to use the valuation process and resulting information to facilitate effective communication with financial and general managers, as well as politicians who represent road users and the broader community.

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— 1 —

Valuation of Road Infrastructure Assets

in Australia and New Zealand 1. Scope This report examines practices by State and Territory road agencies in Australia and by Transit New Zealand in valuation of road infrastructure assets, as at 30 June 1997. Areas of consistency and inconsistency are identified. It is acknowledged that valuation practices are under continuing review, and that some agencies have introduced improvements since 30 June 1997. The practices used by local government Councils are not specifically covered. The report focuses on the potential for infrastructure valuation to assist road agencies in formulating asset management strategies which will meet the needs of road users while minimising the long term costs of providing and maintaining the road networks. The Project Charter for this report is in Appendix 1. 2. Aims The aims of this report are:

• to facilitate informed discussion on the relevance of road asset valuations to the needs of road users and to an agency’s ability to deliver road services to meet those needs,

• to identify benefits of valuation as an asset management tool, and

• to provide a basis for a review of valuation methods for road infrastructure, as proposed in the Austroads Strategic Plan 1998 - 2001 (Ref 23), by suggesting areas where changes to existing valuation practices would enhance the benefits generated by the valuation process.

Notes:

1. A draft version of this report was distributed in June 1998 for comment to a reference panel of approximately 40 people in the Australian State and Territory road agencies, Transit New Zealand and a small number of local government bodies in Australia and New Zealand.

2. In addition, a questionnaire was distributed in June 1998 to the Australian State and

Territory road agencies, Transit New Zealand and Devonport City Council. The Questionnaire and responses are in Appendix 11.

3. During 1998, VicRoads reviewed some aspects of its infrastructure valuation

practices. Appendix 12 contains extracts from the VicRoads Annual Report to 30 June 1998.

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— 2 —

Needs of Road Users and Community Benefits

Asset Features and Condition

Management of Road Use

Road User Costs

Physical Treatments

Level of InvestmentMaintenance

Standards, and Levels of Service

Decisions on Asset Management

Strategy

Road Transport Taxation

Road Use

Valuation Process and Information Other ToolsOther Tools

Figure 1 - The Role of valuation in asset management

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3. Background 3.1 General AAS 29 - Financial Reporting by Government Departments, (Ref 15) first issued in December 1993, requires Government Departments in Australia to prepare general purpose financial reports that are useful in making and evaluating decisions about the allocation of resources. AAS 29 also requires that infrastructure assets be recognised and depreciated. These requirements came onto effect for Australian State and Territory road authorities for financial reports relating to the year ending on 30 June 1996. AAS 27 - Financial Reporting by Local Governments, (Ref 14) places similar requirements on local government Councils in Australia (see Clause 3.2). The 1994 Austroads report Capitalisation of Infrastructure (Ref 6) established policies on:

(i) a framework for valuation of road infrastructure assets in Australia in the following categories: Land under roads and within road reserves Work in progress Roads and bridges Privately funded road infrastructure assets

(ii) determining valuations in each category (iii) determining depreciation in each category (iv) periodic revaluation of road infrastructure assets.

These Austroads polices are consistent with AAS 27 (Ref 14) and AAS 29 (Ref 15). The 1995 Austroads Working Papers Road Asset Management in Australia - State of the Nation 1994/95 (Ref 9 & 10) identified practices current in 1994/95, and proposed the formats in Appendix 2 for the annual presentation of national summaries of road infrastructure financial information. At 30 June 1997 for the first time, all of the State and Territory road agencies in Australia and Transit New Zealand issued data on the valuation of road infrastructure, generally in line with the policies and rationale in the 1994 Austroads publication Capitalisation of Infrastructure. Table 1 shows the history of reporting road infrastructure valuation information by the larger Member Agencies of Austroads. The Austroads Strategic Plan 1998 - 2001 (Ref 23), in Strategy 4 under Issue 3.2 (Asset Management), calls for a review of valuation methods for elements of road infrastructure, as one means of achieving a “reduction in the whole-of-life cost of road supply, maintenance and operation”. All Australian State and Territory road agencies value National Highways separately from other roads. In most cases, valuations of National Highways are not reported separately. Transit New Zealand reports the value of only one class of roads, State Highways. (The term ‘National Highway’ is not used in New Zealand.)

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Table 1 Progress by Australian State Road Agencies and Transit New Zealand

in reporting road infrastructure valuation

89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97

RTA NSW ! # # # # # # # #

DMR Qld # # !

T SA # # # # # # # # ! #

DIER Tas ! # !

# ! # ! # ! # ! # # !

VicRoads # ! # #

MR WA ! # # # #

TNZ ! # # * # * # * # * # * # *

# unaudited valuation reported ! first audited valuation # valuation audited and reported ## revaluation

! DIER Tas measures road asset condition annually, and introduced a modified replacement cost estimation model in 1996/97

* TNZ re-values the network in 2 of the 14 Regions each year, by rotation

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— 5 —

3.2 Valuation of local roads This report does not specifically cover the practices used in the valuation of Local Roads. The value of Local Roads in New Zealand has been estimated at NZ$18.4b (Ref 11, p 31), or more than double the value of the State Highway network. At this time, the aggregate value of Local Roads in Australia has not been determined. In Tasmania alone, the value of Local Roads is estimated at A$2b (Ref 25). By length Local Roads represent 74% and 88% respectively of the total road networks in Australia and New Zealand. In Australia, AAS 27 - Financial Reporting by Local Governments, (Ref 14) first issued in July 1991, requires Local Governments to prepare general purpose financial reports that are useful in making and evaluating decisions about the allocation of resources. AAS 27 also requires that road infrastructure assets be recognised and depreciated. These requirements came onto effect for financial reports relating to the year ending on 30 June 1996. The Australian National Asset Management Manual (Ref 7) and the New Zealand Infrastructure Asset Management Manual (Ref 24) focus on local government assets, and contain guidance on the valuation of Local Road infrastructure. Organisations such as the IMEA and ALGENZ have been active in reviewing valuation methodologies since the two Manuals were issued. It appears that all Local Governments in Australia and New Zealand now value their road infrastructure. Some Auditors-General are also taking an active interest (Ref 25). Depreciation of Local Roads is widely determined on a linear basis. However there is considerable support for condition based depreciation (Ref 7, p 4.37). 3.3 Current action by OECD on valuation of road infrastructure In 1998, OECD conducted an international survey of practices among road agencies around the world relating to valuation of road infrastructure. This survey is part of OECD Project IR7 on Performance Indicators. “Value of Assets” (designated PI 12) is one of the Indicators being examined. OECD has listed the intended purpose of Indicator PI 12 as “to establish the existence of standard and applicable methods to calculate and measure the value of assets of road infrastructure”. It is interesting to note that the Highways Agency in England intended to change from cash accounting to resource accounting from 1 April 1998. Accordingly, to date, valuation of road assets has not been reported for the motorway and trunk road networks in England. Appendix 3 contains a summary of responses prepared in 1998 by Australian road agencies to a questionnaire from the OECD project team on the “Value of Assets” Performance Indicator.

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3.4 Land under roads and within road reserves The 1994 Austroads report Capitalisation of Infrastructure (Ref 6) notes that “the issue of land under roads and within road reserves has not been fully resolved in some States”. As shown in Table 3 and Appendix 7 (Table 7.1), a number of agencies did not recognise the value of land under roads and within road reserves in their financial reports at 30 June 1997. However, representatives of five Australian States have agreed on a number of matters relating to the valuation of land under roads and within road reserves, as described in Appendix 4. Significant progress ahs been made in this area, in particular introduction of the concept of “Raw Land Value” which is supported by several Australian State Valuers General. The Public Sector Accounting Standards Board (PSASB), in conjunction with the Australian Accounting Research Foundation (AARF), recognises some diversity of opinion on the question of whether “land under roads” should be recognised as an asset, and if so, on a suitable method for valuing “land under roads”. Austroads is cooperating with the PSASB and AARF in work to resolve these matters.

Figure 2 Pavement asset valuation process (Source: VicRoads)

Asset inventory 22,178km

Replacement cost $7,714m

Asset valuation $5,151m

Asset condition 1994/95

Restore to “as new” $2,563m

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4. Asset Management and Valuation Austroads uses the term “asset management” to mean a comprehensive and structured approach to the delivery of community benefits through management of road networks. The focus in asset management is on the purpose of the asset as part of a road network. In turn, the purpose of the road network is to facilitate delivery of community benefits such as accessibility, mobility, economic development and social justice. Austroads defined the following eight strongly inter-related elements of asset management in a 1994 report Road Asset Management Guidelines (Ref 5):

• community benefits • road system performance • asset features • asset condition

• asset use • physical treatments • management of use • asset management strategy.

These elements encompass the asset itself (particularly high value components such as pavements, bridges, other structures and traffic control devices), asset condition and use, as well as strategies and actions to maintain and improve asset performance. The practice of asset management in road agencies centres on decisions about strategies and actions to achieve a balance between the needs of road users, the long term performance of the road network, and funding. Valuation plays an important role in asset management because one of the main purposes of valuation is to enable reporting in monetary terms to reflect the physical condition of the road network, thereby assisting asset managers to inform asset owners of the effects of current levels of financing and management strategies. Valuation information is also an indicator of the remaining life or service potential of a road network. Figure 1 illustrates the role of the valuation process and the resulting information in the asset management decision making process. Figure 2, developed by VicRoads, shows a simplified version of the pavement valuation process.. Figure 3 shows a framework also developed by VicRoads connecting asset value, maintenance budget options, and road user costs.

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Figure 3 - A Framework of Asset Value, Maintenance Budget Options and User Costs (Source: VicRoads)

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5. Trends in Values and Costs 5.1 Trends in values Appendix 5 contains summaries of road infrastructure asset valuation data for seven Austroads MAs since the valuation process began. Figure 4 shows trends in the reported written down values of total road infrastructure for six of the Austroads MAs. Figure 5 shows the corresponding trends for the bridge sub-category. Figure 6 shows accumulated depreciation as a proportion of replacement value for the roads sub-category for the six Australian States and Transit New Zealand. The following observations have been drawn from Figures 4, 5 and 6 and Appendices 5 and 7:

• Fluctuations are evident in the values, due largely to difficulties in the valuation process in the early years.

• As a general observation from the trends in accumulated depreciation in Figure 6, the

condition of road networks has been reasonably stable in recent years, for most of the agencies shown.

• For Transport SA, accumulated depreciation represents a significantly higher ratio of

replacement cost than for other MAs in roads and bridges. • DIER Tas adopted a revised model for calculation of replacement value in 1996 and

reported infrastructure valuations using both the old and new models, giving a break in its time series for the roads sub-category, as shown in Figures 4, 5 and 6 and in Appendices 5 and 7.

• RTA NSW reported a significant reduction in total asset value in 1996 reflecting its loss

of control of the regional road network to local government. • Changes by MR WA and VicRoads in the depreciation of earthworks may distort the

trends - from 1 July 1997, VicRoads treats earthworks as having infinite life, while MR WA has reduced the life of earthworks from 200 to 100 years.

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— 10 —

0

5

10

15

20

25

30

35

40

45

50

1990 1991 1992 1993 1994 1995 1996 1997Year

$b

NSWTNZVicTas 1Tas 2WASA

Figure 4 - Reported written down values of total road infrastructure

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

1990 1991 1992 1993 1994 1995 1996 1997

Year

$b

NSWTNZVicTasWASA

NSW

Figure 5 - Reported written down values of bridges

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0.00

10.00

20.00

30.00

40.00

50.00

60.00

1990 1991 1992 1993 1994 1995 1996 1997

Year

Perc

enta

ge

NSWVICTAS 1TAS 2WASAQLDNZ

Figure 6 - Accumulated depreciation as a proportion of

replacement value (roads sub-category) 5.2 Trends in costs Four MAs (DMR Qld, RTA NSW, Transport SA, and TNZ) have their own indices of road construction costs. Main Roads WA uses indices issued by ABS for roads and road furniture, and the Rawlinsons Building Price Index for bridges. The BTE has published a similar index for more than 20 years. The BTE Road Construction and Maintenance Index (RCMPI), was restructured in 1994, as described in BTE Information Paper 41 (Ref 16). These indices are used to update valuations from year to year between revaluations. Recent values of these indices are in Figure 7 and Table 2, with corresponding values of the BTE Road Construction and Maintenance Price Index and the Australian CPI (weighted average for eight capitals).

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Figure 7 - Comparison of road sector cost indices in use in Australia and New Zealand

Index Movement Trends

-4

-2

0

2

4

6

8

10

12

14

1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98

Year

% c

hang

e fr

om p

revi

ous

year

BTE

CPI

DMR Qld

GNFP (WA)

Raw' BPI

RTA NSW

TSA

TNZ Rds

TNZ Brdgs

Licensed to Prof Stephen Emery on 12 Apr 2006. Personal use licence only. Storage, distribution or use on network prohibited.


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BTE ABS DMR Qld Main Roads WA RTA NSW Transport SA Transit NZ

Year BTE RCMPI

Trend (%)

CPI Trend (%)

Road Input Cost Index

Trend (%)

Gross non-farm

product

Trend (%)

Rawlinson’s

Building Price Index

Trend (%)

Road Cost Index

Trend (%)

Price Index

Trend (%)

Road Construction Index

Trend (%)

Bridge Construction Index

Trend (%)

Base year

(93/94 = 100)

(89/90 = 100)

(72/73 = 100)

(89/90 = 100)

(89/90 = 100)

(85/86 = 100)

(85/86 = 100)

1985/86 73.3 75.6 76.02 100.0 6.4 100.0

1986/87 76.4 4.2 82.6 9.3 80.39 5.7 104.6 4.6 107.7 7.7

1987/88 80.9 5.9 88.5 7.1 85.66 6.6 109.2 4.4 115.1 6.9

1988/89 86.1 6.4 95.2 7.6 95.2 96.75 12.9 116.9 7.1 122.0 6.0

1989/90 89.5 3.9 102.5 7.7 529.8 100.8 5.9 102.49 5.9 124.6 6.6 130.7 7.1

1990/91 96.2 7.5 106.0 3.4 555.2 4.8 105.0 4.2 106.04 3.5 134.3 7.8 135.7 3.8 1327 1328

1991/92 97.0 0.8 107.3 1.2 572.0 3.0 106.6 1.5 106.04 0.0 137.7 2.5 139.7 3.0 1337 0.8 1339 0.8

1992/93 98.8 1.9 109.3 1.9 582.7 1.9 108.5 1.8 106.04 0.0 135.0 (2.0) 142.3 1.8 1371 2.5 1368 2.2

1993/94 100.0 1.2 111.2 1.7 591.1 1.4 109.1 0.6 106.04 0.0 134.7 (0.2) 145.1 2.0 1371 0.0 1369 0.1

1994/95 102.3 2.3 116.2 4.5 601.5 1.8 110.2 1.0 107.63 1.5 137.2 1.9 149.3 2.9 1396 1.8 1396 2.0

1995/96 102.9 0.6 119.8 3.1 611.2 1.6 113.4 2.9 111.42 3.5 144.3 5.2 153.5 2.8 1418 1.6 1412 1.1

1996/97 104.2 1.3 120.2 0.3 618.1 1.1 116.3 2.6 113.65 2.0 148.2 2.7 156.9 2.2 1442 1.7 1438 1.8

1997/98 121.0 0.7 117.7 1.2 115.00 1.2 151.8 2.4 157.8p 0.6p 1461 1.3 1456 1.3

Table 2 - Comparison of the Australian Consumer Price Index and the BTE Road Construction and Maintenance Price Index

with Cost Indices used by DMR Qld, MR WA, RTA NSW, Transport SA and Transit NZ



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6. Current Position in Australia and New Zealand 6.1 General All Australian State and Territory road agencies and TNZ now report the value of their road infrastructure assets in accordance with AAS 29, and generally in accordance with the 1994 Austroads policy (Ref 6). A checklist for compliance with the 1994 Austroads policy is in Appendix 6. TNZ regards the State Highway network as being owned by the Crown and local authorities. TNZ therefore reports the value of the State Highway network in an annual “Statement of Resources” which forms part of each TNZ Annual Report. 6.2 Practices used in valuing The current practices of Australian State Road Agencies and Transit New Zealand for valuing land under roads and within road reserves, work in progress, roads, bridges, traffic signals, street lighting and earthworks are summarised and tabulated in Appendix 7. Also in Appendix 7, Table 7.5 gives the definitions of bridges used in the valuation process. Most MAs publish an outline of their valuation method and any changes as notes to the financial statements in Annual Reports. Additional detail is available from each MA. The TNZ approach to valuation and depreciation of road infrastructure assets is in Section 6.5 of the TNZ State Highway Asset Management Plan (Ref 26). 6.3 Infrastructure categories valued and reported Table 3 shows the infrastructure categories valued and reported by MAs in Annual Reports at June 1997. MAs typically value more infrastructure categories than shown in Table 3 which lists only those categories with valuations shown as part of infrastructure assets in Annual Reports at June 1997. For example, DIER Tas also values traffic signals, land purchased for future roadworks and surplus land. All Australian State Road Agencies and Transit New Zealand report the value of “bridges” separately from “roads”. TNZ values land, formation, pavement, drainage, bridges, other structures, miscellaneous (traffic facilities, road furniture, etc), and reports under three headings - roads, bridges and other. As a result of the NZ Institute of Chartered Accountants Exposure Draft 82, Accounting for property, plant and equipment (Ref 27), the NZ Auditor-General’s Office is promoting specific valuation of a greater number of components in the roads and bridges category, including the separate recognition of the seal from the balance of the pavement.

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RTA NSW intends to review its Traffic Signal Control Network classification (SCATS computers and communications equipment, closed circuit TV systems, fibre optic cable network, and control room equipment), expanding it to cover all infrastructure used for the dynamic control of traffic, including traffic signals (approximately 3,000 sets), the lane changing system on the Sydney Harbour Bridge, and the Transport Management Centre. RTA NSW is the only MA to recognise assets at 30 June 1997 under the “privately funded road infrastructure assets” category. Values reported under this category represent the RTA’s future right to assume full control of privately funded roads in Sydney (Sydney Harbour Tunnel, M2, M4 and M5 at 30 June 1997) which have been developed and are being managed under BOOT (build, own, operate and transfer) arrangements. 6.4 Land Road agencies typically have other land assets in addition to land under roads and within road reserves, particularly

• land acquired for future roadworks, • land used for management purposes (offices, depots, etc), and • surplus land.

The value of land under roads and within road reserves is included in road infrastructure asset valuation, whereas the value of other land is included in property assets. Reference to Appendix 5 shows that the value of land under roads and within road reserves varies from approximately 10% (DIER Tas) to around 35% (MR WA and RTA NSW) of the total written down value of road infrastructure assets. Transport SA has reported that a complete valuation of its land under roads and within road reserves is intended by 30 June 2000. VicRoads has agreed a valuation approach with the Victorian Valuer-General based on “Raw Land Value”, and has placed a value on land under roads. The valuation is yet to be audited pending a clearance from Victoria’s Treasury to include the value in VicRoads Annual Financial Statements.

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Table 3

Road infrastructure categories with valuations in Annual Reports at June 1997

Agency Land under Roads and

Within Road Reserves

Work in Progress

Roads and Bridges Privately Funded

Infrastructure Assets

RTA NSW # # Roads Bridges Traffic Signal Control Network (see Clause 6.3)

#

VicRoads " # Road Pavements Bridges Traffic Control Systems Earthworks (from June 1998) Sound barriers (from June 1998)

Not applicable

DIER Tas # # Roads Bridges

Not applicable

Main Roads WA # # Roads Bridges Road Furniture (covers traffic signals, road lighting installations, a reversible lane system, and the Narrows Interchange reticulation system)

Not applicable

Transport SA Value of $253,000 at 30 June 1997 includes only land acquired since 1 July 1996.

# Roads Bridges and Culverts Traffic Signals

Street Lighting

Not applicable

DUS ACT " " Roads Bridges Other

Not applicable

DMR Qld "

Land cost is expensed when construction begins

# Roads Bridges

Not applicable (Note 2)

TNZ "

Valuation carried out, but included with “Roads” in Annual Reports

"

Included in the relevant category, and not disclosed separately

Roads (includes land under roads and within road reserves, traffic facilities, earthworks, drainage and pavement) Bridges Other (includes tunnels, culverts, subways and other structures)

Not applicable

# Valuation reported for this category; " Valuation not reported for this category

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Notes to Table 3:

1. RTA NSW subdivided the road category of infrastructure assets into three separate sub categories (roads, bridges and traffic signal control network) following a review of AAS10.

2. At 30 June 1997, DMR Qld reported road infrastructure valuations under “Parent Entity”, and

“Consolidated (includes QML)”. QML is Queensland Motorways Limited. Amounts quoted in this report are those for the Consolidated accounts, that is, they include the Logan Motorway and the Gateway Bridge.

6.5 Depreciation methods Table 4 shows the practices of MAs at 30 June 1997 in depreciation of road infrastructure assets. For roads, of the eight MAs with details in Table 4, three use condition as the basis of depreciation for roads, and five use age. One (Transport SA) is investigating a change from age to condition. VicRoads, Main Roads WA and Transport SA have conducted analyses to determine the service and maximum lives of roads (40 to 60 years) shown in Table 4 as inputs to the calculation of depreciation. Within the roads sub-category, those MAs which value earthworks separately generally do not depreciate earthworks. VicRoads and Transport SA have reviewed their approach to the valuation of earthworks during 1997/98. Outlines of the proposed approaches to the valuation of earthworks are in Appendix 7 (Table 7.4). For bridges, most MAs use bridge age to determine depreciation. The RTA NSW approach is predominantly based on age at present, and RTA is planning to adopt a condition based methodology. Transport SA uses remaining life as the basis of depreciation, and periodically reassesses the remaining life of individual bridges. The other six MAs with details in Table 4 use age as the basis of depreciation. DIER Tas uses a parabolic depreciation curve, and the remaining five use a straight line for depreciation of bridges. For traffic signals and street lighting, straight line depreciation is used, generally with assumed average life spans from 12 to 50 years, as detailed in Table 4. Assets recognised in the categories “land under roads and within road reserves” and “work in progress” are not depreciated.

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Table 4 - Depreciation methods in use by Austroads Member Agencies (June 1997)

Agency Roads Bridges Traffic Signals

Street Lighting

RTA NSW Condition based, using 6 subnetworks - similar to DIER Tas - see below.

Predominantly based on age (condition based method being developed). First depreciated 1994/95.

Straight line. First depreciated 1995/96.

VicRoads Pavements: See Note 4. Straight line, 60 years. Earthworks: Infinite life from 1 July 1997.

Straight line, 90 years.


DIER Tas Condition based, using 4 categories of roads. PMS (FNOS) is used to calculate accumulated depreciation as the estimate of cost of restoring pavement to “near new” condition in one year.

Parabolic (age squared). Steel, concrete 70 yrs Timber bridge 25 years T-Beam 50 years Historic 250 years Major 100 years.

Traffic signals: straight line, 33 years. Associated electronics: straight line, 20 years.

Main Roads WA Sealed rural roads: Condition based, with maximum life 50 years. Other roads: Straight line - 40 years (asphalt metropolitan), 12 years (gravel roads). Earthworks: Straight line - 200 years (100 yrs, after 1997).

Straight line over service life, ranging up to 100 years, depending on generic type, as detailed in Appendix 7 (Table 7.9).

Straight line, different lives are assigned to different components, from 11 to 40 years.


Transport SA Straight line: 40 yrs (inner urban arterials and Nat Hwys), 53 yrs (rural and outer urban Nat Hwys), 58 yrs (rural and outer urban arterials). Investigating a move to condition-based.

Straight line, 70 - 100 years with changing gradient (remaining life reviewed at each inspection).



DTW NT DTW NT does not depreciate its assets DUS ACT Straight line, 100 years. Straight line,

100 years. Straight line, 30 years.


DMR Qld Straight line: Surfacing 7 - 10 years. Pavement 30 years. Formation 80 years.


TNZ Zero for earthworks and tunnels. Straight line, 36 years for pavements (TNZ assumes that restoration costs are 55% of the cost of replacing base and surface, which are assumed to represent 70% of the pavement replacement cost).

Straight line. Economic life assumed to be 100 years for bridges built before 1920, and 90 years for bridges built since 1920.

Zero annual depreciation, based on assumptions that these assets are maintained at near new condition.

Zero annual depreciation, based on assumptions that these assets are maintained at near new condition.

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Notes to Table 4:

1. Land under roads and within road reserves is not depreciated. 2. Depreciation is not applicable for work in progress. 3. Depreciation is not applicable for privately funded road infrastructure assets. 4. Whilst VicRoads has adopted a straight line depreciation methodology, it does take

account of pavement condition when establishing the accumulated depreciation. The VicRoads depreciation model allows for revaluations based on condition information. A straight line methodology is adopted between revaluations.

6.6 Use of asset valuation in Performance Indicators Main Roads WA has reported annually since 1993/94 two performance indicators of “assets employed”, as shown in Table 5.

Table 5 - Performance Indicators with asset value as an input

MA No Title Description

MR WA Indicator 1.3.A Asset value and vehicle travel Vkt per $ of road network asset value

MR WA Indicator 1.3.B Asset value and freight Tonne-km per $ of road network asset value

Details of these two Main Roads WA Program Performance Indicators are in an extract from the 1997 Annual Report in Appendix 8 to this report. Main Roads WA also uses asset value as a basis for determining the annual user fee for capital which is an input to the MRWA Performance Index, an indicator used in determining shifts in productivity pay for personnel. The DMR Qld Strategic Plan 1998 - 2002 nominates “asset value of the state-controlled road network” as a corporate performance measure.

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6.7 Bridge Values as a Proportion of Road Infrastructure Assets All Australian State Road Agencies and Transit New Zealand report the value of “bridges” separately from “roads”. Table 6 shows the written down replacement values for roads, bridges, and total road infrastructure excluding land under roads and excluding privately funded infrastructure assets, at 30 June 1997. This indicates a fairly consistent proportion of bridge values (13% to 18% of total excluding land), except for a high dependency on bridges in Tasmania, and Queensland with the lowest proportion of bridge value.

Table 6 - Written-down values of roads and bridges at 30 June 1997

MA

Roads

Bridges

Total Road Infrastructure (Notes 1 & 2)

Bridges as a % of

Roads

Bridges as a % of

Total

RTA NSW A$18,106m A$3,870m A$22,549m 21.37 17.16

VicRoads A$9,365m A$2,104m A$11,970m 22.47 17.58

DIER Tas A$1,454m A$914m A$2,391m 62.86 38.23

MR WA A$5,514m A$865m A$6,508m 15.69 13.29

Transport SA A$1,839m A$345m A$2,387m 18.76 14.45

DMR Qld A$11,545m A$1,396m A$13,301m 12.09 10.50

Total (6 States of Australia)

A$47,823m A$9,494m A$59,106m 19.85 16.06

TNZ NZ$6,145m NZ$1,452m NZ$7,928m 23.63 18.31

Notes to Table 6:

1. The value of land under roads and within road reserves has been omitted from total road infrastructure asset values used in Table 6 because at 30 June 1997 four MAs have not reported the value of land under roads and within road reserves. In addition, exclusion of land may give a more meaningful comparison.

2. The value of privately funded road infrastructure has also been excluded from total road

infrastructure asset values used in Table 6. Trends in the written down values of bridges are in Figure 5.

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7. Depreciation of Road Infrastructure Assets 7.1 The meaning of depreciation in accounting terms Depreciation is the proportion of an asset consumed during an accounting period. Accumulated depreciation is the part of the original cost of a non-current asset which has been treated as an expense in successive profit and loss accounts. A non-current asset is an asset which has a useful life extending over more than one accounting period. Accumulated depreciation, therefore, is a measure of the loss of service potential of an asset since the asset was acquired or constructed. 7.2 A discussion of depreciation in physical terms Accumulated depreciation in the context of an asset such as a road network is an indicator of the future cost of restoring the network from its present actual condition to an as-new or near-new condition, that is the cost of restoring its as-new service potential. A robust method for calculating depreciation is therefore essential for accumulated depreciation to be a reliable management tool. Road assets, especially pavements, can be restored to as-new or near-new condition (or service potential) through physical treatments such as rehabilitation. Restoration to as-new or near-new service potential is not economical for many assets (eg motor vehicle, personal computer). Note however that an asset such as a fleet of motor vehicles (as distinct from each specific vehicle) can be restored to new condition. The non-linear nature of the pattern of deterioration of the condition of pavements over long periods is well documented. Pavement deterioration is always non-linear at the project level. At the network level, uniform pavement deterioration might theoretically be possible, but factors such as non-uniform distribution of traffic loading and pavement age, variations in quality of construction and maintenance, axle loadings increasing with time, and pavement technology improving with time give rise to non-linear deterioration at the network level. It can therefore be argued that, at least for pavements, a uniform rate of depreciation will not give a true indication of asset value, thereby diminishing the worth of accumulated depreciation as a management tool, if calculated on a linear time basis. For example, in successive Annual Reports since 1993 (Ref 2), RTA NSW has reported a strong objection to the use of age-based depreciation for long-life assets such as road pavements, favouring condition-based depreciation, on the basis that wear and tear from physical use outweighs commercial or technical obsolescence (see Appendix 9). Condition based depreciation is described by Burns (Ref 17). Expenditure on maintenance or rehabilitation of assets offsets consumption or depreciation of those assets. Net movements in accumulated depreciation, year on year, therefore are potentially strong indicators of the change in condition of the network, or the change in service potential of the network. Examples of these movements are shown in Appendix 5.

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7.3 Technical obsolescence Some assets lose service potential through technical obsolescence, rather than through deteriorating condition. Examples include electronic control equipment used in intelligent transport systems such as traffic signals, and bridge structures designed for axle loading standards which become superseded. For these assets, restoration to provide as-new service potential is not practical or economic, and it is appropriate to dispose of or write off these assets for operational reasons notwithstanding their good condition. Condition based depreciation is not appropriate for assets which are likely to become technically obsolete. A different measure of loss of service potential is necessary. Age based depreciation is appropriate in these cases, and a straight line approach is usually used in calculating depreciation. As shown in Table 4, age is the most common basis for calculating depreciation of bridges in Australia and New Zealand. DIER Tas makes two calculations, one using a straight line and one using a parabola (ie age2). DIER Tas reports depreciation of bridges on the basis of parabolic deterioration with age, whereas the other Austroads MAs use a straight line. With an age based system for calculating depreciation, the challenges are to determine the expected life and the rate of change of “provision for restoration”. It is appropriate to conduct periodic reviews of the expected life of assets subject to age-based depreciation. For example, Transport SA reviews the remaining life of each bridge at the time of the regular inspection. Austroads (Ref 10) has defined “remaining life” for a road pavement as:

Remaining life of a pavement may be defined as the period, under current or stated traffic growth, during which the pavement condition is expected to remain within stated limits, provided that appropriate routine and preventive maintenance are carried out.

Until June 1993, RTA NSW calculated depreciation for its road assets as the sum of a condition based amount “provision for restoration” (ie, condition based deterioration) and an age based amount “provision for asset renewal” (ie a straight line based on a 100 year life before technical obsolescence). This is explained in the RTA NSW Annual Report (p46) to 30 June 1993 (Ref 2). However, for valuations at 30 June 1994 and since, RTA NSW has calculated depreciation for roads (dominantly pavements) only on the basis of condition, as explained in the extracts from the 1995 and 1996 Annual Reports in Appendix 9. The current approach by RTA NSW to calculation of depreciation for roads effectively renders estimation of remaining life unnecessary. 7.4 Current AARF reviews of Australian accounting practice There is concern in the Australian accounting profession that some, but not necessarily all methods of condition based depreciation may not comply with relevant Accounting Standards. The Australian Accounting Research Foundation (AARF) has initiated a review of condition based depreciation (Ref 29). This review is also closely related to recent AARF work on major cyclical maintenance (Ref 30), of “complex assets” such as road infrastructure.

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8. Factors Affecting Road Asset Values Factors which may contribute to changes in reported asset values include:

• changes in the quantity of asset - road networks can be extended or reduced either through commissioning newly constructed works, closing old routes or sections of road, or through changes in classification. For example, in NSW control of the regional road network passed from the State (RTA) to Local Government during 1995/96 (Ref 2, 1996 RTA Annual Report, page 46).

• changes in the condition of components of the asset where depreciation is based on asset

condition. • changes in the age of the asset where depreciation is based on asset age. • changes in the estimated remaining life of part of the asset where depreciation is based on

remaining life. • changes in the methodology used to value any component of the asset. For example,

DIER Tas adopted a revised valuation model on 30 June 1996, and reported two valuations at that date, one using the old method and one using the new method, as shown in Figures 4, 5 and 6 and Appendix 5.

• technology innovations which increase efficiency - a reduction in construction costs will result

in reduced estimates of reproduction or replacement cost. • changes in standards - for example where current written down costs are based on replacement

costs rather than reproduction costs, a change in standards for say shoulder width on roads or bridges may result in changed estimates of replacement cost. Changes in performance standards such as flood immunity or safety could potentially have a similar effect. It has to be recognised that changes in standards impact service potential.

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9. Issues to be Resolved in Valuation of Road Infrastructure a) The degree of precision and integrity and the cost of the valuation process should be influenced

by the purpose or intended use and the potential benefits of the resulting information.

b) What is capitalised? What is expensed? (Eg, Construction of road infrastructure assets). As an example, one MA proposes to expense all roadworks costs, with the valuation process picking up changes in capital value as a result of changes in inventory. A consistent approach to the definitions of maintenance, rehabilitation and construction is desirable.

c) Criteria for recognising expenditure as “work in progress”. Is work in progress recognised and reported in historical (“out turn”) or indexed to current year dollars? (cf Responses to Questions 9, 10 and 11 in Appendix 11).

d) Improved consistency and robust methods for calculating accumulated depreciation are desirable. Age based (usually straight line) depreciation can be over a fixed pre-determined life, or over a “remaining useful life” which can be regularly reviewed and reassessed from time to time.

e) In estimating the replacement cost of infrastructure assets in a particular category, some MAs value every asset (eg, bridge, road link, etc) individually and aggregate them in spreadsheets or similar, others assemble like assets into generic groups, allocate typical values and aggregate them. For “roads”, DIER Tas uses an algorithm where the inputs are surface area, terrain, traffic volume, road class, and adjacent landuse (rural/urban), and the output is a cost per sq m. The Auditor-General of Tasmania has accepted the algorithm. The algorithm and an explanation are in Appendix 10.

f) Varying approaches to the inclusion of specific road related infrastructure contribute to inconsistency between jurisdictions in total reported valuations of road infrastructure. For example, the Melbourne City Link, a significant road infrastructure asset in Victoria, being the responsibility of the Melbourne City Link Authority, not VicRoads, is not included in VicRoads valuation information, though its value is expected to be recorded in the appropriate set of accounts. The busway in Adelaide is included in Transport SA’s infrastructure assets, and some ferry-related infrastructure assets have been valued and reported by DIER Tas whereas corresponding assets are not included for other MAs, notably TNZ and VicRoads which do not include facilities for inter-island shipping in road asset valuations.

g) With respect to the cost of service adjustments in association with road infrastructure construction, at least one MA reports that it is impractical or not economical to omit utility adjustment costs with existing costing arrangements. The 1994 Austroads report Capitalisation of Infrastructure stipulates that the cost of public utilities should not be included in the value of roads and bridges. However, it is necessary to distinguish between the cost of adjustments and the cost of new utility assets. The responses to Question 8 in the Questionnaire in Appendix 11 indicate some diversity on this point, which could make significant differences to the valuation of road infrastructure in urban situations.

h) Should the costs of traffic control be included? See the responses to Question 8 in Appendix 11.

i) What does “construction has commenced” mean in relation to “land under roads and within road reserves”? - presumably physical works, viz too late to sell land back.

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a) Some MAs make no allowance for upgrading to current geometric or hydraulic standards in

estimating the replacement cost of roads and bridges. The relevant point here may be to distinguish between “reproduction cost” and “replacement cost” as used in the 1994 Austroads report Capitalisation of Infrastructure (Clause 3.3(c)), especially in relation to functional obsolescence. It appears that MAs do not make a clear distinction between replacement and reproduction in this context, with most MAs using reproduction cost, but describing it as replacement (see the responses to Question 6 in the Questionnaire in Appendix 11).

b) Australian State Road Agencies and Transit New Zealand report the value of “bridges”

separately from “roads”. This reflects significant differences in service lives, differences in condition assessment, the dominance of pavements in road valuations, and the consequential dominance of pavement management in asset management decisions, in terms of the quantum of investment involved and the effect on asset depreciation.

c) Some State Road Agencies in Australia also report traffic signals separately, though there are at

present major differences in the scope of assets included in traffic signals. d) While the separate values of roads and bridges can be added to give a value in accordance with

the Austroads category “Roads and Bridges”, it is opportune to test the possibility of agreement on sub-categories within “Roads and Bridges”. This is covered in Question 3 in the attached questionnaire (see Appendix 11).

e) Pavement is the element of road assets with the highest value, and typically represents around

80% of the total value of road infrastructure assets without land under roads and within road reserves. The cost of pavement restoration is easily the largest component of accumulated depreciation when calculated on the basis of road condition, possibly representing more than 90% of accumulated depreciation. Pavement life cycle costs are high. Deferred maintenance tends to be concentrated in the pavement sub-category of road infrastructure assets. Is there a case for the valuation process to be more rigorously applied to pavements than to other components?

f) No attempt has been made in this report to use available valuation data to calculate indicators

such as return on investment. The MR WA Performance Indicators on Table 5 appear appropriate to the concept of return on investment. A per capita approach is potentially useful for specific classes of roads (eg, National, State, Local).

g) What level of awareness is there among MAs of the use made by external entities of valuation

information in Annual Reports? Are users satisfied with the extent of information available? h) Figure 7 compares the trends of the indices in Table 2. Rationalisation of the use of cost indices

among MAs appears to offer an opportunity for cost savings. i) A number of issues relating to land under roads and within road reserves have been identified as

shown in Appendix 4, and are being addressed by the PSASB Working Party on land under roads and within road reserves.

j) The concept of a renewal annuity, as being used in the Australian water industry, could be

explored, including consideration of concepts such as “annual average asset consumption” and “sustainability index” (Ref 27).

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10. Benefits of Valuation In an article about performance indicators for the road sector, an OECD scientific expert group reported in 1997 that the trend in the value of road assets “has been found to be a most useful indicator which has many uses and is the best summary descriptor of the long term performance of the road program” (Ref 22). Specific benefits of road infrastructure valuation in the Australian and New Zealand context are expected to include:

• Facilitates more effective and credible communication between politicians, senior management, and staff in road agencies with Finance and Asset Management responsibilities, in strategic planning and budgeting processes

• Provides a common language for communication about asset management of road networks between people with strong affiliations to accounting, engineering, economic and management disciplines

• Includes asset consumption or asset performance (change in condition or remaining service life over time), principally the performance of road pavements and bridges (the dominant components of accumulated depreciation of non-current assets), as a key contributor to the agency’s financial position

• Improves awareness of the overall condition of the road network, and changes in condition

• Creates potential to study relative movements in asset value as a result of say wet seasons or significant changes in landuse and traffic patterns, not only in a technical engineering sense, but also in a commercial sense

• Creates potential to study relative movements in asset value between geographic areas, road routes, etc, and between government service provision sectors

• Raises awareness of movements over time in the condition of the road network - particularly important with mature networks where physical deterioration may be accelerating

• Sharpens focus on key management issues such as remaining service potential and remaining life of components of the asset

• Facilitates more effective allocation of resources to match service potential with user needs

• Provides fundamental benefit in setting up road use charges reflecting the cost of providing road infrastructure

• Facilitates comparisons as a starting point to explore differences, thereby underpinning the process of benchmarking

• Differences year on year between accumulated depreciation (accounting terminology) or provision for restoration (asset management) indicate whether the network as a whole is moving towards or away from condition targets

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• Assists in assessment of investment priorities between asset management of road infrastructure and other forms of community services

• Asset valuation data facilitates a balance between technical and commercial considerations in decisions about levels of investment and allocation of resources

• Gives potential for coarse inter-regional comparisons of returns on assets, eg vkt and tonne-km freight per $(value of assets) as used by Main Roads WA (see Appendix 8), and as an aid to identification of Community Service Obligations, and

• Contributes to Austroads objectives such as a coordinated approach to administrative practice (Ref 23, Issue 4.2), and improved effectiveness and efficiency in management of the road system (Ref 23, Issue 3.2), and a consistent approach to asset management.

Refinement of valuation methods may be expected to enhance these benefits. Agency staff would be more effectively motivated and committed to preparation of annual valuation reports if they were confident that the resulting valuation reports would be used as management tools. 11. Financial Summaries The availability of valuation information from all MAs enables compilation of annual financial summaries of Australasian Road Data in the formats along the lines suggested in Appendix 2. These formats show annual valuation, depreciation and investment by road class (National, State and Local) by agency. Annual financial summaries of this type have the potential to generate discussion on what this data means (particularly the meaning in changes over time of this data) and how the data can be used in managing road assets.

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12. Directions for Future Action

1. Work towards improved consistency in valuation methodologies and reporting, with effort focussed initially on the issues in Section 9 in this report, covering Commonwealth, State, Territory and Local Governments in Australia and New Zealand.

2. Develop a consistent approach among Austroads MAs to the definitions of key asset

management terms such as maintenance, rehabilitation and construction. 3. Continue current work to develop a consistent approach among Austroads MAs to the

assessment of condition of the main components of road infrastructure, particularly pavements and bridges.

4. Review the suggested formats in Appendix 2, and compile annual financial summaries for

incorporation in future editions of the Austroads series Road Facts (Ref 18) and elsewhere.

5. Update and expand the 1994 Austroads policy booklet Capitalisation of Infrastructure.

For example:

• It appears that most MAs are valuing roads and bridges at written down replacement cost rather than at written down current cost (the lower of reproduction, replacement or historical cost) in accordance with Clause 3.3(c).

• There appears to be a case for expanding the number of categories of road infrastructure assets, to show separately earthworks, pavement and drainage, bridges, traffic signals (or more generically intelligent transport systems), etc.

• Clarification of surplus land and land held for future infrastructure as a separate category of assets from land under roads and within road reserves, but not forming part of infrastructure assets.

6. Explore the feasibility of adopting a single national index in Australia or a rationalised

suite of indices for road costs. 7. Explore means of analysing valuation data to provide useful management information

(eg, net rates of road asset consumption, year-on-year or inter-regional comparisons of ratios such as written down value/replacement value, return on assets employed, value of assets per capita, etc).

8. Gauge the use and potential use by external bodies of valuation information published by

road agencies. 9. Explore the potential for an Austroads National Performance Indicator based on road

infrastructure valuation information, and OECD PI 12.

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13. Conclusions

A. This report sets out current practices in road infrastructure valuation, and identifies areas of consistency and inconsistency between the State road agencies in Australia and Transit New Zealand.

B. Valuation information is described from an asset management perspective,

complementing the traditional accounting perspective on capitalisation. C. The potential benefits to a road agency from both the valuation process and the resulting

information are articulated. D. The relative potential of the different approaches to depreciation (condition based and age

based) to support the use of valuation information as an effective input to road asset management decisions is worthy of further study, involving asset management and accounting professionals.

E. A number of other directions for future action are identified for consideration as part of

the intended Austroads review of valuation methods for road infrastructure elements.

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14. References 1. NAASRA, August, 1982, NIMPAC Road Planning Model Manual (Page 2-C-8 et alia). 2. Roads and Traffic Authority, NSW, 1990 to 1998, Annual Reports. 3. Department of Infrastructure, Energy and Resources Tasmania

(formerly DTW Tas and DoT Tas), 1991 to 1997, Annual Reports. 4. Transit New Zealand, 1992, 1993, 1996, 1997 and 1998, Annual Reports. 5. Austroads, 1994, Road Asset Management Guidelines, AP-109/94. 6. Austroads, 1994, Capitalisation of Infrastructure, AP-116/94. 7. IMEA Australia, 1994, National Asset Management Manual. 8. Department of Transport SA, 1994, 1996, 1997 and 1998, Annual Reports. 9. Austroads, 1995a, Road Asset Management in Australia - State of the Nation 1994/95. 10. Austroads, 1995b, Road Asset Management in Australia - State of the Nation 1994/95 -

Technical Supplement. 11. Ministry of Transport, NZ, Land Transport Pricing Study, 1995, The Cost of Roading

Infrastructure. 12. VicRoads, 1995 to 1998, Annual Reports. 13. Main Roads WA, 1995 to 1998, Annual Reports. 14. AAS 27, June, 1996 (Australian Accounting Standard) - Financial Reporting by Local

Governments (AARF). 15. AAS 29, November, 1996 (Australian Accounting Standard) - Financial Reporting by

Government Departments (AARF). 16. Bureau of Transport Economics, (formerly BTCE) 1996, BTE Road Construction and

Maintenance Price Index (Information Paper 41). 17. Burns, P, 1996, Managing for Asset Maintenance and Renewal, International Conference of

Maintenance Societies, Melbourne. ICOMS-96, Paper 48. 18. Austroads, 1997a, Road Facts ’96, AP18-97. 19. Austroads, 1997b, Strategy for Improving Road Asset Management Practice. 20. DMR Qld, 1997 and 1998, Annual Reports. 21. Department of Infrastructure, Energy and Resources Tasmania (formerly DoT Tas),

1997, Transport Infrastructure, June 1997 Valuation. 22. OECD, Road Transport Research, Performance Indicators for the Road Sector, 1997. 23. Austroads, 1998, Strategic Plan 1998 - 2001. 24. ALGENZ, June, 1998, New Zealand Infrastructure Asset Management Manual. 25. Parliament of Tasmania, Auditor-General Special Report No 26, May 1998, Capitalisation and

Reporting of Road Assets in Tasmania. 26. Transit New Zealand, 1998, State Highway Asset Management Plan

(draft, March 1998), Section 6.5. 27. Institute of Chartered Accountants of New Zealand and Financial Reporting Standards Board,

March 1998 Exposure Draft 82, Accounting for property, plant and equipment. 28. Office of Local Government, AMQ International, Skilmar Systems, and Jeff Roorda and

Associates, July 1998 (Final Draft), Facing the Renewal Challenge, Victorian Local Government Infrastructure Study.

29. AARF, Urgent Issues Group, 8 September 1999, Condition-Based Depreciation - Discussion Paper, Issue 99/7.

30. AARF, Urgent Issues Group, June 1999, Accounting for major cyclical maintenance, Abstract 26 and Issue Summary 98/8.

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APPENDIX 1

Charter for Austroads Project BS.A.70 - The Use of Valuation

Valuation of

Road Infrastructure Assets in Australia and New Zealand

(September 1999)

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AUSTROADS PROJECT - BS.A.70

Use of Valuation in Asset Management

Project Charter

A. PURPOSE To promote wide and common understanding of the important role asset valuation can take in improving:

(i) public knowledge of how well infrastructure is being managed, (ii) knowledge regarding the effects of level of investment, (iii) Road Authority decision making in targeting investment decisions, and (iv) effective communication and cooperation between finance and asset management staff in

road authorities B. ISSUE/BACKGROUND In 1996/97 for the first time, most if not all, of the larger road agencies in Australia will issue data on the capitalisation of road infrastructure, generally in line with the Policies and Rationale in the 1994 Austroads publication Capitalisation of Infrastructure. This in part results from the adoption of accounting standard AAS 29. This will enable Austroads and others to compile annual financial summaries of Australasian Road Data in the formats such as that suggested in Appendix 11 in the Austroads 1994/95 State of the Nation Report on Road Asset Management in Australia. Analysis could show annual valuation, depreciation and investment by road class (National, State and Local) by agency amongst other things. Time series analysis and reporting of movements in depreciation over time can be used to monitor changes in condition. Financial summaries of this type will have the potential to generate discussion on what this data means (particularly the meaning in changes over time of this data) and how the data can be used in managing road assets. External users will use the data for lobbying. To help ensure that this discussion is well informed, an Austroads report is proposed on the relevance of road asset valuations to the needs of road users and to an agency’s ability to deliver road services. This project will lead to such a report.

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C. AUSTROADS FIT

Strategic Plan 1995-98: Issues 1.1 and 4.4 (Outcome and Strategy 2) Strategy for Improving Asset Management Practice: Actions A10, C5

D. SCOPE Project scope consists of:

(i) assembly of data on asset valuation prepared by road agencies and the methods in use (ii) review methodologies compared with the 1994 ‘Capitalisation of Infrastructure’

document (iii) generate financial summaries (iv) workshop meaning of the financial data and how it can be used (v) report national status and detailed benefits from valuation.

E. OBJECTIVE The aim is to facilitate discussion on the relevance of capitalisation information, including annual valuations and movements in value of road infrastructure, in the context of the needs of road users and planning by road agencies to satisfy those needs. The crux is to establish rational links between asset valuation, asset condition, asset use and investment in maintenance, rehabilitation and construction. The Project would also examine the sensitivity of valuations to any variations in methods between agencies, even where methods comply with the Austroads report Capitalisation of Infrastructure and AAS 29. F. CONSULTATION PROCESS Consultation is intended among the member authorities (MAs) through members of AUSTROADS AMRG and finance representatives. Contact with external bodies interested in MAs financial reporting is proposed. Although not finalised, this is likely to include user and accounting bodies, and members of academia. G. METHODOLOGY As defined in D. Scope above the following methodology is proposed:

(i) assembly of data on asset valuation prepared by road agencies and the methods they use (ii) review methodologies compared with the 1994 ‘Capitalisation of Infrastructure’

document (iii) generate financial summaries for possible inclusion in future editions of the Austroads

“Road Facts” publication. (iv) workshop meaning of the financial data and how it can be used (v) report national status and detailed benefits from valuation.

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H. OUTPUTS A report on the potential to use infrastructure valuation data in planning asset management strategies, with a view to an increased focus on the needs of road users. I. OUTCOMES AND BENEFITS

a. Common understanding of asset valuation as a tool. b. An increasingly credible and uniform approach to asset management. c. A balanced approach to the use of asset valuation data in decisions about levels of

investment and allocation of resources. d. Improved opportunities for inter-agency benchmarking.

J. SUCCESS CRITERIA Increased acceptance of Asset Valuation as a public relations and network management tool. K. STAFFING AND RESOURCES Project Manager: Michael Bushby DoT (Tas) Working Group: To be assembled involving finance staff and asset managers. Consultant to facilitate and prepare report.

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APPENDIX 2

Possible Formats for

Financial Data Summaries for Australasian Roads

Valuation of


(September 1999)

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AUSTRALASIAN ROAD DATA

FINANCIAL SUMMARY

Year Ended 30 June ……..

Value*

($’000)

Depreciatio

n

($’000)

Constructio

n Investment

($’000)

Maintenanc

e Investment

($’000)

Rehabilitatio

n Investment

($’000)

National Roads

Land under roads

Works in progress

Roads and bridges

Privately funded inf assets

Total National Roads

State Roads

Land under roads

Works in progress

Roads and bridges


Total State Roads

Local Roads

Land under roads

Works in progress

Roads and bridges


Total Local Roads

GRAND TOTAL

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AUSTRALASIAN ROAD DATA 199? - DISTRIBUTION OF ASSETS Year Ended National Roads State Roads Local Roads

Total

Grand 30 June …….. Land

Under Roads

Works in Progres

s

Roads & Bridges

Privately Funded Infrastr Assets

Land Under Roads

Works in Progres

s

Roads & Bridges


Land Under Roads

Works in Progres

s

Roads & Bridges


Land Totals

Queensland Value $ m Qty ’000 km NSW Value $ m Qty ’000 km

Victoria Value $ m Qty ’000 km

Tasmania Value $ m Qty ’000 km

South Value $ m Australia Qty ’000 km

Western Value $ m Australia Qty ’000 km

Northern Value $ m Territory Qty ’000 km

Australian Value $ m Cap Territory Qty ’000 km

AUSTRALIA Value $ m TOTAL Qty ’000 km

NEW Value $ m ZEALAND Qty ’000 km



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APPENDIX 3

OECD Project IR7 on Performance Indicators

Performance Indicator PI 12 - Value of Assets

Summary of Australian Responses to OECD Questionnaire

Valuation of


(September 1999)

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APPENDIX 3

OECD PROJECT IR7: PERFORMANCE INDICATOR "PI 12 - VALUE OF ASSETS" - FIELD TEST

Tasmania South Australia New South

Wales Western Australia Queensland Victoria Northern Territory

Measuring Procedure

(a) Is there a method in use to calculate and measure the value of assets of the road infrastructure:

YES YES YES YES YES YES YES

(1) Is the road infrastructure defined for asset value calculation?


(2) Does the defined road infrastructure include classified engineering structures: -

YES

- road structures? YES YES YES YES YES (Earthworks & Drainage)

YES YES

- pavements? YES YES YES YES YES YES YES - bridges and tunnels? YES YES YES YES YES YES YES - other engineering structures? NO YES YES YES NO YES YES

- equipment or accessories? NO YES YES YES NO (included in others)

YES YES

(3) Does the road infrastructure include land areas or other properties?

YES NO YES YES YES YES NO

(4) Does the road infrastructure include other elements:

YES

- unfinished structures (construction project) ?

YES YES YES YES YES YES NO

- project plans? NO NO NO NO NO NO - other? NO NO NO NO NO NO NO (5) Are the annual road investments

(reconstruction, new investments etc.) defined for asset value calculation.

YES YES YES YES YES YES NO

(6) Is there a standard procedure for calculation of road investments?

NO YES YES YES YES YES N/A

(7) Are the road investments calculated or reported annually?

NO YES YES YES YES YES YES



— 40 —

(8) Is there a standard procedure for asset calculation comprising calculation parameters:

- depreciation parameters? YES YES YES YES YES YES NO - hold times? YES NO NO YES YES NO NO - salvage values? NO NO NO NO NO NO NO (9) Are the calculation parameters based on

studied or measured information? YES YES YES YES YES YES NO

(10) Is the asset value calculated or addressed for the physical road sections?

YES NO YES YES NO YES YES

(11) Is there a system (module, software etc.) to calculate and measure the asset value?

YES NO YES YES YES YES NO

(12) Does the asset value calculation system record data history?

YES YES YES Not the system itself, but copies of data files used for the calculation every year are kept.

YES YES YES

(13) Does the calculation system include:

- possibility to adjust calculation parameters?

YES NO YES YES NO YES NO

- analysis routines for investment option selection?

NO NO YES Not the asset valuation model. A pavement management system called dTIMS has recently been acquired that may be used for investment option selection and for optimising fund distribution.

NO NO NO

- fund distribution optimisation techniques? NO NO YES see above NO YES NO



— 41 —

(14)Is the asset value calculated for different

type of structure? YES YES YES YES YES YES YES

(15) Is the asset value calculated for different road classes?


(16) Is the annual calculation and asset value reviewed and reported transparently depending on circumstances?


(17) Is the asset value used for: - strategic planning for road management? YES YES YES NO NO YES YES

- planning for funding of road investments? NO YES YES NO NO YES NO

- balance sheets of road authorities? YES YES YES YES YES YES YES C) Specify asset value calculation

parameters, yearly depreciation values (%), hold times (year) and salvage values(%):

- road structures Included in pavements

Yearly Depreciation Expenditure $US3.0M, ie. 4.5% written down replacement cost, straight line depreciation.

Included in pavements

Calculation parameters=terrain factor, formation width, section length, terrain type, soil type, unit rates, clearing costs, overheads. Yearly depreciation = 0.5% Hold time = 200 years (changed to 100 years this year

Formation/Drainage 1.25%, 80yr

60 years, 2% depreciation

N/A ARV ONLY



— 42 —

- pavements Carriageway area, terrain, land use, traffic volumes, National/State road; condition based depreciation is employed

Yearly depreciation $US64m ie. 2.5%, straight line depreciation.

Written down value = cost to

replace less cost to restore

Calculation parameter=pavement depth, formation width, section length, pavement type, road type, soil type, unit rates, overheads. Yearly depreciation = varies according to road type, pavement age and roughness value.

3.3%, 30yr

Hold time = varies according to road type, pavement age and roughness values, but not more than 50 years.

- bridges or tunnels class of structure, base unit rates for replacement; parabolic depreciation Present Value = Replacement Cost x (1-age/life)2

Yearly depreciation $US6.4m ie. 1.6%, straight line depreciation

Written down value = cost to

replace less cost to restore

Calculation parameters = average unit replacement cost by type. Yearly depreciation = varies according to bridge type. Hold time = varies according to bridge type from 50 to 100 years.

Timber, 1.25%, 80yr 90 years 1% depreciation

- other engineering structures NIL Yearly depreciation $US0.13m ie. 7.7%, straight line depreciation.

N/A Yearly depreciation = varies according to culvert type and environment type. Hold time = varies according to culvert type and environment type from 30 to 100 years.

Concrete 1%, 100,



— 43 —

- equipment or accessories NIL To be determined N/A Yearly depreciation = 4%. Hold time = 25 years.

Surfacing 14% or 10%, 7 or 10

- land areas Average value/sq m for commercial, residential and urban areas.

To be determined N/A Calculation parameters = average land values in the metropolitan area and nominal unimproved valuation rates for rural area. No depreciation.

- unfinished structures ACTUAL COST To be determined N/A Calculation parameters = direct actual costs. No depreciation

Not depreciated

- project plans NIL To be determined N/A N/A

- other NIL To be determined N/A N/A Traffic control systems 24years, 4% depreciation

- road infrastructure in total, if not classified NIL N/A N/A

d) Report asset value (1997) RV=Replacement Value WDV=Written Down

Value

- road structures Included in pavements

Included in pavements

$US11.859B RV=$US2.59B WDV=$US1.26B

Formation/Draining $US4,644M

$US6248M $US1.64 Billion

- pavements $US952M $US1225M RV=$US2.32B WDV=$US1.26B

$US2325M

- bridges or tunnels $US599M $US226M $US2.534B RV=$US0.76B WDV=$US0.56B

$US917M $US1378M

- other engineering structures NIL $US2M $US3.802M (Traffic Facilities)

Included in bridges and culverts above

- equipment or accessories NIL RV=$US0.057B WDV=$US0.035B

Surfacing $US590M $US63

- land areas $US186M $US9.630B RV=$US2.47B WDV=$US2.47B

NIL



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- unfinished structures (construction

projects) $US16M $US114M $US372M RV=$US0.089B

WDV=$US0.089B $US236M $US149M

- project plans NIL N/A - other NIL N/A N/A - road infrastructure in total, if not classified NIL RV=$US8.28B

WDV=$US6.70B

Unit Number or percent of yes/no answers Yes 20, No 10

Value of assets in $US million $US1753M Gross Value $US3144M, Written down value $US1567M

$US24.40B RV=$US7.92B WDV=$US6.42B

$US8712M $US7838M $US1.64 Billion

Target Value Goal for standard of the method to calculate or measure value of assets of road infrastructure, if any?

NIL Not developed The goal is to ensure accurate calculation of the replacement value and the depreciated value, and to better determine the remaining life and value of pavements by improving the current deterioration model that is based only on roughness and pavement age.

The calculation method used for Infrastructure Assets must adhere to Australian Accounting Standards

N/A

Goal for value of assets ($USmillion) or road infrastructure, if any?

NIL Currently, there is no corporate target for this indicator

Value based on deprival method at current replacement cost and any capital works in progress at current cost.

N/A

Goal for change of assets ($US million) or road infrastructure over a time period, if any?

NIL Existing asset to be preserved at least to current value

Currently, there is no corporate target for this indicator

N/A



— 45 —

Trends Value of assets ($US billion) of road

infrastructure (structures/land areas):

1998 $US26.77B ($US/$A - 0.655)

1997 $US1.75b $US1.57b $US24.40B ($US/$A - 0.655)

RV=$US8.28B WDV=$US6.70B

$US8.71b $US7.84b

1996 $US1.74b $US1.64b $US23.67B ($US/$A - 0.655)

RV=$US7.92B WDV=$US6.42B

Not available $US6.0b

1995 UNAVAILABLE UNAVAILABLE $US27.18B ($US/$A - 0.655)

RV=$US6.74B WDV=$US5.91B (Approximately 1,550km of road was taken from Local Government at 30 June 1996 as result of a road classification review.)

Not available Not Available


RV=$US6.37B WDV=$US5.56B (not depreciation for earth

works)



Asset valuation was applied from 1994 onwards.




— 46 —

Data Collection

Report data collection methods for annual road investments

Inventory and condition surveys, works completion report

Annual capitalisation of work in progress. Systematic collection of pavement treatment data.

Visual and automated data collection (roads) and manual data collection (bridges)

Laser profile, 3 lasers, for collecting roughness and rutting. However, only roughness is used for calculating the remaining life of pavements. Other road inventory data used in the valuation (see qu.17c) is updated annually.

Most data sourced from existing Asset Management Information Systems

Data collected with assistance of VicRoads Regions and consultants

Costs Approximate administration authority level (national/state/provincial/regional/local) relevant to indicator.

$US200000/year $US65,000/year Bridges not available, RoadCrack Survey $US170,000 Road Condition Survey (Roughness, Rutting, and Texture) $US200,000

$US160,000 for collecting roughness and rutting data (every 2 years). $US400,000 to maintain and update the road inventory system (annual). $US350,000 to maintain and update the bridge management system (annual).

$US120,000 Major additional cost in extracting data from existing systems and performing the calculations

$US100,000 approx.

Management Authority

State the lengths of different classes of roads under the above management authority relevant to the indicator.

National & state roads

State State State government State State

Road Classification

State the lengths of different classes of roads under the above management authority relevant to the indicator.

National Hwy 320kms, State Rds, 3,273km

Nat. Highways 2753 km, Urban Arterials 890km, Rural Arterial 8633km, Urban Local 24km, and Rural Local 10328km

National Highways 3,010km, State roads 14,610km, Toll roads 58km, Unincorporated Regional 510km, Unincorporated Local 2,461km, Total 20,649 km

National Highways 4,650km State Highways 6,273km Main roads 6,547km Total 17,470km

Nat Highways 10,760kms, Developmental Roads 8,815km, Main 7,757km, Secondary 6,135km, Arterials 132km, Sub-arterials 67kms.

Nat Highways 19,440kms, Freeways 623kms, Tourist Roads 3,001kms, Main Roads 27,242kms



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How is the indicator used?

Describe the utilisation of the calculation or measurement method of asset value and the reported value of assets.

Annual report, budget negotiations and strategic planning in a general sense.

For financial statements. For strategic funding assessment.

Used in the following: RTA Annual Report and in Asset Management for Resource Allocation

Asset valuation is used mainly for financial reporting and to highlight trends in the value of the asset, as a result of the allocation of funds for preservation works (calculated as a percentage of replacement value).

Government Financial Statements

The valuation of infrastructure assets is being used as a budgeting tool for depreciation.

MRWA recognises the potential use of asset valuation in calculating the return on invbestment.

$US/$A exchange rate used of 0.655



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APPENDIX 4

Valuation of Land under Roads and Within Road Reserves Points of Agreement

Valuation of


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APPENDIX 4

Valuation of Land Under Roads and Within Road Reserves Representatives of VicRoads, RTA NSW, DIER Tas, DMR Qld and Transport SA met on 15 April 1998 at VicRoads to develop an Austroads consensus for submission to the PSASB Working Party on valuation of land under roads and within road reserves.

A six-page report was produced. The main points are:

• Land under roads and within road reserves should be recognised as an infrastructure asset (all agreed except NT).

• Land under roads and within road reserves should be separated into “Land in Road Reserves” and “Surplus Land and Land held for Future Infrastructure”.

• Land under roads is essential to the provision of road services and there are no legal impediments to road authorities gaining benefit from land under roads or denying or regulating access by others to the benefits embodied in the land.

• Land in road reserves of all roads whether freeways, arterial or local roads including National and State roads can be reliably valued, and a single common approach should be used.

• Surplus land and land held for future infrastructure can be valued reliably.

• The potential future economic benefits of land in a road reserve would be overstated if recorded at current market price when the road agency is restricted in its use of the land (as in the case of the majority of public roads where there is a common law right of access to the road from adjoining land).

• The current market price of adjacent land is not normally the best indicator of the current market price for land in a road reserve, partly because of an interdependence of values between land within a road reserve and land adjacent to a road reserve.

• Land in road reserves should be valued using an average of rateable values for a wide area such as a local government area or a postcode area.

• Current market price could be applicable to land for future roadworks.

• All land in road reserves, surplus land and land for future roadworks should, regardless of the method of acquisition, be recognised and valued, including land contributed without cost by for example a developer.

• Recognition of land under roads is considered likely to benefit users of financial reports.

• Recognition of land under roads may influence road pricing but would have no real impact on day to day asset management decisions.

• Land under roads will represent a significant item in balance sheets and profit and loss statements.

• The value of land under roads is unlikely to be useful in assessing the efficiency of an agency in providing road services.

• Agencies that control land within road reserves, surplus land and land held for future infrastructure are accountable for those assets as resources.

• The benefits of valuing land will exceed the costs involved provided the valuation methodology reflects the purpose of the valuation.

• The value of land under roads and within road reserves would have no real impact on day to day asset management decisions.

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APPENDIX 5

Summaries of MAs’ road infrastructure asset valuation data

Valuation of


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REPORTED VALUES OF ROAD INFRASTRUCTURE ASSETS

Tasmania (Department of Infrastructure, Energy anmd Resources) (A$m)

ROADS BRIDGES LAND WORK PRIVATELY TRAFFIC SIGNALS

TOTAL

Replacement Cost

Accumulated Depreciation

Written Down Value

Replacement Cost


Written Down Value

UNDER ROADS IN PROGRESS FUNDED INFRASTRUCTURE

Replacement Cost


Written Down Value

Replacement Cost


Written Down Value

1997 2,193 739 1,454 1,103 189 914 285 24 21 11 10 3,626 939 2,687

1996 (A. R.) 2,181 732 1,449 1,089 177 911 284 9 3,563 909 2,653

1996 3,826 779 3,047 1,089 178 911 284 9 5,208 957 4,251

1995 (adj) 3,837 793 3,044 1,058 164 911 276 21 5,192 957 4,235

1995 3,837 793 3,044 936 42 894 276 21 5,070 835 4,235

1994 3,831 753 3,079 874 874 265 31 5,001 753 4,248

1993 3,195 750 2,446 753 25 728 249 16 4,213 775 3,439

1992 3,562 985 2,577 738 274 6 985 3,595

Victoria (VicRoads) (A$m)

EARTHWORKS PAVEMENTS (pre '98, "Roads")

BRIDGES LAND WORK PRIVATELY TRAFFIC CONTROL SYSTEM

SOUND BARRIERS

TOTAL

Replacement Cost


Written Down Value

Replacement Cost


Written Down Value

Replacement Cost


Written Down Value


Replacement Cost


Written Down Value

Replacement Cost


Written Down Value

Replacement Cost


Written Down Value

1998 4,250 0 4,250 9,279 2,542 6,737 2,859 762 2,097 (see 191 224 138 86 92 5 88 #VALUE! 3,446 13,449

1997 included in roads

12,942 3,403 9,539 2,833 728 2,104 Clause 229 224 128 96 #VALUE! 4,259 11,970

1996 included in roads

9,910 2,950 6,960 2,202 665 1,537 6.4) 515 217 66 151 #VALUE! 3,681 9,164

1995 (unaudited)

4,743 0 4,743 7,714 2,563 5,151 2,117 705 1,412 577 157 45 112 15,308 3,313 11,996

Queensland (Department of Main Roads) (A$m)

ROADS BRIDGES LAND WORK PRIVATELY TOTAL

Replacement Cost


Written Down Value

Replacement Cost


Written Down Value


Replacement Cost


Written Down Value

1997 19,869 8,323 11,545 1,812 415 1,396 359 22,040 8,738 13,301

Western Australia (Main Roads Department) (A$m)

EARTHWORKS PAVEMENT, DRAINAGE &

SEAL

BRIDGES LAND WORK PRIVATELY ROAD FURNITURE

TOTAL

Replacement Cost


Written Down Value

Replacement Cost


Written Down Value

Replacement Cost


Written Down Value


Replacement Cost


Written Down Value

Replacement Cost


Written Down Value

1998 3,786 927 2,859 3,415 1,586 1,829 1,123 298 826 3,898 244 86 30 56 12,552 2,841 9,711

1997 3,982 476 3,507 3,569 1,625 1,945 1,165 299 865 3,798 137 87 33 54 12,738 2,433 10,306

1996 3,893 450 3,443 3,467 1,543 1,924 1,142 288 854 3,512 79 78 26 52 12,171 2,307 9,864

1995 3,346 3,346 2,980 1,046 1,933 1,050 218 831 2,902 19 68 20 48 10,365 1,284 9,080

1994 3,252 3,252 2,878 1,018 1,861 1,029 208 821 2,523 41 65 20 45 9,788 1,246 8,543



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Transport South Australia (A$m)

ROADS BRIDGES LAND WORK PRIVATELY TRAFFIC SIGNALS

STREET LIGHTING

TOTAL

Replacment Cost


Written Down Value

Replacment Cost


Written Down Value


Replacment Cost


Written Down Value

Replacment Cost


Written Down Value

Replacment Cost


Written Down Value

1997 3,878 2,039 1,839 623 278 345 0.253 174 44 36 8 57 36 21 4,776 2,389 2,387

1996 3,749 1,944 1,816 607 264 344 305 40 33 7 61 37 24 4,762 2,278 2,484

1995 3,726 2,076 1,898 591 248 343 54 27 27 61 31 30 4,432 2,382 2,050

1994 4,337 2,415 1,922 4,337 2,415 1,922

1993 4,193 2,253 1,940 4,193 2,253 1,940

1992 4,135 2,176 1,958 4,135 2,176 1,959

1991 3,906 2,150 1,756 3,906 2,150 1,756

1990 3,786 2,022 1,764 3,786 2,022 1,764

New South Wales (Roads and Traffic Authority) (A$m)

ROADS BRIDGES LAND WORK PRIVATELY TRAFFIC SIGNAL

CONTROL SYSTEM

TOTAL

Replacement Cost


Written Down Value

Replacement Cost


Written Down Value


Replacement Cost


Written Down Value

Replacement Cost


Written Down Value

1997 22,175 4,070 18,106 3,924 54 3,870 14,703 568 498 8 2 6 41,876 4,126 37,750

1996 21,071 4,036 17,035 3,838 52 3,786 14,826 493 484 7 1 6 40,719 4,089 36,630

1995 27,886 5,792 22,094 4,120 61 4,059 14,803 522 469 10 10 47,810 5,853 41,957

1994 21,964 570 21,395 3,933 3,933 13,797 692 455 10 10 40,851 570 40,281

1993 21,696 848 20,849 3,906 3,906 14,743 925 262 8 8 41,540 848 40,692

1992 21,417 943 20,474 3,775 3,775 16,679 766 269 7 7 42,913 943 41,970

1991 18,456 351 18,105 3,729 3,729 20,922 302 6 6 43,415 351 43,064

1990 17,778 17,778 3,714 3,714 20,922 6 6 42,420 0 42,420

Transit NZ (NZ$m)

ROADS BRIDGES LAND WORK PRIVATELY OTHER TOTAL

Replacement Cost (incl land under roads)


Written Down Value

Replacement Cost


Written Down Value


Replacement Cost


Written Down Value

Replacement Cost


Written Down Value

1998 9,258 1,354 7,904 2,395 933 1,462 1,671 500 120 380 12,153 2,407 9,746

1997 9,049 1,336 7,713 2,356 903 1,453 1,568 435 105 330 11,840 2,344 9,496

1996 8,382 1,032 7,350 2,302 862 1,440 1,411 372 74 298 11,056 1,968 9,088

1995 8,042 991 7,051 2,305 832 1,473 1,373 354 72 282 10,701 1,895 8,806

1994 7,565 951 6,614 2,270 805 1,465 355 80 275 10,190 1,836 8,354

1993 6,915 1,219 5,696 2,282 817 1,465 341 72 269 9,538 2,108 7,430

1992 6,673 1,057 5,616 2,272 791 1,481 341 70 271 9,286 1,918 7,368



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APPENDIX 6

Checklist for compliance with Austroads 1994 policy

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APPENDIX 6

Checklist for Compliance with Austroads 1994 Policy (Reference: 1994 Austroads report Capitalisation of Infrastructure) General

1. Are road infrastructure assets recognised under four categories: Land under roads and within road reserves, Work in progress, Roads and Bridges, and Privately funded infrastructure assets?

Valuation Land Under Roads and Within Road Reserves

2. Is the land valued on basis of area of road reserve at average VG’s average rateable value of land in the LGA, categorised as “urban” or “non-urban”?

3. Is land included only where road is in use, or construction has commenced? Work in Progress

4. Are all actual costs shown, including overheads and pre-construction activities, but excluding land?

Roads and Bridges

5. Are current costs shown for all road and bridge assets? 6. Is the rationale explained for arriving at current cost (eg, historical indexed,

replacement or reproduction) for the various components of road and bridge assets?

7. Is the depreciation rationale described for the various components which are depreciated differently, eg, road formation, drainage, pavement, bridges, other structures, signals, signs, street lighting, etc?

8. Where indexing is used, is the source of the index shown? 9. Are the costs of public utilities (eg, gas, water, electricity, communications,

irrigation, sewer, etc) excluded?

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APPENDIX 7

Current MA practices in valuing

land under roads and within road reserves, work in progress,

roads, earthworks,

bridges, traffic signals,

and street lighting Definitions used by MAs for bridges

Service lives of structures assumed by MR WA

Valuation of


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APPENDIX 7

CONTENTS

Table 7.1 Valuations of land under roads and within road reserves category at 30 June 1997

Table 7.2 Valuations of work in progress category at 30 June 1997

Table 7.3 Valuations of roads sub-category at 30 June 1997

Table 7.4 MA approaches to the valuation of earthworks

Table 7.5 Valuations of bridges sub-category at 30 June 1997

Table 7.6 Definitions of bridges adopted by Member Agencies for valuation purposes

Table 7.7 Valuations at 30 June 1997 of traffic signals/facilities and MR WA road furniture sub categories

Table 7.8 Valuations at 30 June 1997 of Transport SA street lighting and TNZ culverts, subways and other structures sub-categories

Table 7.9 Service lives of structures assumed by MR WA for depreciation purposes

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Table 7.1 -

Valuations of Land Under Roads and Within Road Reserves category at 30 June 1997

Value Reported at 30.6.97

Value at 30.6.97 (A$m)

Reference

Comment

NSW Yes 14,703 Note 12(b), p77 in Annual Report to 30 June 1997

Accords with Austroads 1994 policy (see p48 in 1996 Annual Report, not described in 1997 Annual Report).

Qld No - DMR Qld “expenses” land cost when construction begins.

Tas Yes 285 Note 11, p42 in Annual Report to 30 June 1997

Accords with Austroads 1994 policy. Urban is subdivided to “residential” and “commercial”.

SA No Note 3(b), p67 in Annual Report to 30 June 1997

Intended to be reported by 30 June 2001.

Vic No - VicRoads did not use this category at 30 June 1997. VicRoads adopted the “Raw Land Value” concept as a basis for valuation of land under roads and within road reserves at 30 June 1998 (see Clause 3.4).

WA Yes 3,798 Note 1 (d)(i), p60, & Note 4, pp64 & 65 in Annual Report to 30 June 1997

Accords with Austroads 1994 policy in metropolitan area. Simplified approach in rural area.

TNZ Not shown in TNZ Annual Report

1,439

(NZ$1,568)

Table 6.6 in draft State Hwy Asset Management Plan (March 1998)

Aust dollar amount based on conversion rate of NZ$1.09 = A$1.00 (ref SMH, 28 June 1997).

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Table 7.2 - Valuations of Work in Progress category at 30 June 1997

Value

Reported at 30.6.97

Value at 30.6.97 (A$m)

Reference

Comment

NSW Yes 568 Note 12(b), p77 in Annual Report to 30 June 1997

Accords with Austroads 1994 policy.

Qld Yes 359 Note 3(j), p82 in Annual Report to 30 June 1997

Appears to accord with Austroads policy.

Tas Yes 25 Note 11, p42 in Annual Report to 30 June 1997


SA Yes 174 Note 14, p74 in Annual Report to 30 June 1997

Vic Yes 230 Note 8.11, p68 in Annual Report to 30 June 1997


WA Yes 137 Note 1(d) (v), p60 in Annual Report to 30 June 1997

Appears to comply with Austroads 1994 policy (At 30 June 1997, land under roads has been included only where the land was acquired immediately before site works commenced, and the works continue beyond one year).

TNZ No - TNZ does not use this category.

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Table 7.3 - Valuations of Roads sub-category at 30 June 1997

Value at 30.6.97 (A$m) Reference Comment

NSW Replacement Cost: Accum Depreciation: Written Down Value:

22,175 4,070

18,106

Note 12(b), p77 in Annual Report to 30 June 1997

Includes pavement, earthworks, drainage, etc and all traffic signals, but excludes “Traffic Signal Control Network” (cf Table 7.7). Complies with Austroads 1994 policy. Movement since 1996 largely influenced by Road Cost Index.

Qld Replacement Cost: Accum Depreciation: Written Down Value:

19,869 8,323

11,545

Note 3(j), p80 & Note 18, p88 in Annual Report to 30 June 1997

Initial valuation. Includes roads (surface, pavement and formation), bridges and construction works in progress.

Tas Replacement Cost: Accum Depreciation: Written Down Value:

2,193 739

1,454

Note 11, p42 in Annual Report to 30 June 1997

Complies with Austroads 1994 policy. Includes all components except bridges.

SA Replacement Cost: Accum Depreciation: Written Down Value:

3,981 2,081 1,900


Includes pavement, seal, drainage, street lighting and busway. Earthworks are not included, and are intended to be included at 30 June 1998.

Vic1 Replacement Cost: Accum Depreciation: Written Down Value:

12,942 3,403 9,539

Note 2.4(b), pp60 & 61, & Note 8.11, p68 in Annual Report to 30 June 1997

Reported as “road pavement” which includes earthworks (partial in 1997 (no earthworks included in 1996 valuation1)), drainage, pavement, surfacing, roadside furniture, intersections, design and surveillance costs. Depreciation is on the basis of a straight line with an assumed average life of 60 years.

WA Replacement Cost: Accum Depreciation: Written Down Value:

7,552 2,100 5,451

Note 1(d), pp63 to 65 in Annual Report to 30 June 1997

Includes earthworks, drainage, pavement and seal. Excludes road furniture.

TNZ Replacement Cost: Accum Depreciation: Written Down Value:

6,740 1,226 5,514

Table 6.6 in TNZ draft Asset Management Plan (March 1998)

Includes earthworks, drainage & pavement. Dollar amounts are based on NZ$7,346.2m replacement cost, and a conversion rate of NZ$1.09 = A$1.00 (ref SMH, 28 June 1997).

Note 1: VicRoads reported the value of earthworks at 30 June 1995 as $4,743m (unaudited). The VicRoads 1997 valuation includes $2,855m for earthworks (representing earthworks above formation level only) which was not included in the 1996 valuation. VicRoads reviewed its approach to the valuation of earthworks during 1997/98, as described in Table 7.4.

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Table 7.4 - MA Approaches to the valuation of earthworks

State/ Valuation Methods for Earthworks Depreciation Territory/

Nation In Use/

Proposed Description

of Earthworks

NSW In Use RTA NSW includes the value of earthworks with pavement, signs, drainage (other than bridges), etc when estimating the gross replacement cost of the road sub-category of its road infrastructure assets. Estimates of comprehensive replacement costs are based on current unit construction costs per square metre of pavement for a range of terrain types and regional circumstances. Four terrain types are used - flat, undulating, hilly and mountainous as defined by Austroads (Ref 1).

Earthworks are considered to be a long term asset and are not depreciated.

Victoria Included in “road pavement” at 30 June 1997. Revalued and reported separately at 30 June 1998.

Road sections have been grouped into classes based on function and cross-section. For each road section the proportion of adjacent terrain is classed as flat, undulating, hilly or mountainous is calculated using a GIS analysis. Using an expert working group, comprising regional and project staff, quantities are estimated for each functional and terrain class. The quantities are broadly checked using available road construction contract data from the past 5 years (although this tends to be limited). Likewise, unit costs ($/m3) are determined for each functional and terrain class. Excavation in rock is seen as a minor effect and has been applied as an overhead on the total rates.

Earthworks are considered to have an indefinite life, and are not depreciated.

Tasmania In Use DIER Tas uses a similar approach to RTA NSW with earthworks included in the overall estimate of road replacement costs in accordance with the algorithm in Appendix 10. Two terrain types are used (flat/undulating) and hilly/mountainous).

PMS is used to calculate accumulated depreciation, and so earthworks are effectively not depreciated.

Western Australia

In Use MR WA uses volumes of general earth, silt and rock per square metre of road formation are estimated for terrain type (flat, undulating, hilly and mountainous), each Region and road type. Allowances are included for clearing.

Earthworks are depreciated on a straight line basis over 100 years (formerly 200).

South Australia

In Use Transport SA is nearing completion of a review of its approach to the valuation of earthworks. The proposal is to sort the road network into lengths with similar earthworks characteristics, based on only one variable (terrain type - flat, hilly, undulating and mountainous), and apply generic unit costs for pavement area to each length. Proposed to report National Highways and State Roads separately.

At this stage no depreciation of the earthworks is proposed.

Queensland In Use DMR Qld values earthworks on the basis of unit rates for terrain type (3 classes - flat, undulating and hilly/mountainous), Model Road State (using 9 of the 19 Austroads Model Road States (Ref 1)) and road configuration, with unit rates for lane-kilometres.

Earthworks are depreciated on a straight line basis over 80 years.

New Zealand In Use TNZ values earthworks on the basis of unit costs per square metre of pavement, varied to reflect location, width, terrain and foundation conditions.

Earthworks are not depreciated.

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Table 7.5 - Valuations of Bridges sub-category at 30 June 1997


NSW Replacement Cost: Accum Depreciation: Written Down Value:

3,924 54

3,870


Includes all bridges and culverts 6m or more long on the road centreline. Bridges depreciated for the first time at 30 June 1996. Depreciation method understood to be partly based on condition, and partly based on age/assumed remaining life.

Qld Replacement Cost: Accum Depreciation: Written Down Value:

1,812 415

1,396

Notes 3 & 18, p81 & 88 in Annual Report to 30 June 1997

Appears to include only bridges, not culverts or other structures. Straight line depreciation with assumed average life of 100 years.


1,103 189 914


Includes approximately 1,230 structures (bridges, culverts, slipways, jetties, boat ramps, retaining walls, sign gantries and concrete safety barriers). Replacement cost does not include any allowance for improved geometry or hydraulic capacity. Depreciation based on age squared (ie, parabolic) as shown in Table 4.


623 278 345


Includes bridges and culverts with spans greater than 1.8m or waterway area greater than 3 sq m. Straight line depreciation, with remaining life and age assessed periodically for each structure.

Vic Replacement Cost: Accum Depreciation: Written Down Value:

2,833 728

2,104

Note 8.11, p68 in Annual Report to 30 June 1997

Includes all bridges and culverts with span length equal to or more than 1.8m or a waterway area > 3 sq m. Depreciated on a straight line basis, assuming a 90 year life (cf 80 years in 1994/95. Westgate Bridge valued separately.


1,165 299 865

Note 1(d), pp63 to 65 in Annual Report to 30 June 1997

Includes box culverts and arches with spans greater than 6m, and other structures with clear openings greater than 3m. Straight line depreciation used.


2,161 828

1,332

Note 1, p39 in Annual Report to 30 June 1997, & Table 6.6 in TNZ draft Asset Management Plan (March 1998)

Includes bridges, but not culverts, subways or other structures. Dollar amounts are based on conversion rate of NZ$1.09 = A$1.00 (ref SMH, 28 June 1997). Straight line depreciation used.

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Table 7.6 - Definitions of bridges adopted by Member Agencies for valuation purposes

Agency Definition of Bridge

Austroads (1994 Interim Efficiency Measures (AP-110-94)

A clear span structure greater than 15 m in length (not a culvert or series of culvert runs).

This Austroads definition for bridges was adopted on the basis that structures shorter than 15m are unlikely to have a significant impact on the performance of a road at network level. The Austroads definition for bridges may not be appropriate for the purposes of infrastructure valuation.

RTA NSW Structure to carry a road over an obstacle by spanning it, with a clear length of 6m or more, measured between faces of abutments and in the direction of the road centreline.

VicRoads Structure with a span or diameter 1.8 m or greater, or a waterway area 3 sq m or greater

DIER Tas All structures where detail structural design input has been involved, eg bridges, subways, culverts, slipways, jetties, boat ramps, retaining walls, sign gantries and concrete safety barriers.

Main Roads WA

All structures which carry a road over a road, railway, stream or other obstruction, and has a clear opening in any span of more than 3 m (more than 6 m for an arch or box culvert). Footbridges and pedestrian underpasses are included. Sign gantries are not included.

Transport SA Structure with a span or diameter 1.8 m or greater.

DMR Qld A bridge is a structure built to cross an obstacle in the road network. For the purpose of road infrastructure asset valuation, bridges consist of:

• structural elements such as abutments, piers, beams, decks, etc, and • ancillary elements such as footways, railing, lights, etc.

Cellular structures or sets of pipes built as part of a road formation to allow for drainage in case of flooding or general wet conditions are culverts, not bridges. For the purpose of road infrastructure asset valuation, culverts are part of the road formation and are valued as part of the Road classification.

TNZ Structure with a waterway area 3.4 sq m or greater.

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Table 7.7 - Valuations at 30 June 1997 of traffic signals/facilities

and MR WA road furniture sub-categories


NSW Replacement Cost: Accumulated Deprec: Written Down Value:

8 2 6


Labelled as “Traffic Signal Control Network”. Covers only assets associated with coordination of traffic signals. First depreciated in 1995/96. Note that the value of RTA’s approximately 3,000 traffic control signal installations is of the order of $300m, and is included in “Roads”.


21 11 10


Covers 247 sets of traffic signals. All components are depreciated on a straight line basis with assumed average lives of 33 years, except for associated electronics which have assumed average service lives of 20 years.


44 36

8


Covers approximately 400 sets of intersection type and 228 sets of pedestrian traffic signals, and 41 school crossings. Straight line depreciation, based on average life of 12 years.

Vic Replacement Cost: Accum Depreciation: Written Down Value:

224 128

96

Note 8.10, p68 in Annual Report to 30 June 1997

Covers approximately 2,500 sets of traffic signals and traffic control systems. Straight line depreciation, based on average life of 24 years.


87 33 54

Note 4, pp63 to 65 in Annual Report to 30 June 1997

Labelled as “Road Furniture”. Covers 633 (603 at 30 June 1994) sets of traffic signals. Also covers 164 (138 at 30 June 1994) road lighting installations, emergency telephones and other electrical assets (SCATS, CCTV and variable message signs), a reversible lane system, and the Narrows Interchange reticulation system. All components are depreciated on a straight line basis with assumed average lives of 25 years.


Australian dollar amounts are based on NZ$134.26m replacement cost and a conversion rate of NZ$1.09 = A$1.00 (ref SMH, 28 June 1997)

123 58 65


Labelled as “Traffic facilities”. Covers traffic signals, all signs, sign supports, lighting, pavement markings and markers, medians, median barriers, guide posts, chevrons, sight rails, safety barrier systems, footpaths, berms, traffic islands and other road furniture.

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Table 7.8 - Valuations at 30 June 1997 of

T SA Street Lighting and TNZ Culverts, Subways and Other Structures sub-categories


SA Replacement Cost: Depreciation:

Written Down Value:

57 36 21


Covers 11,936 (10,020 at 30 June 1995) poles. Straight line depreciation, based on average life of 25 years.

WA See Table 7.7

A total of 164 (138 at 30 June 1994) installations with 3,982 (3,737 at 30 June 1994) poles is included in “Road Furniture”, as shown in Table 7.7.

TNZ Replacement Cost: Depreciation:

Written Down Value:

400 96

304


Covers culverts, subways and Other Structures.

Australian dollar amounts are based on NZ$435.92m replacement cost and a conversion rate of NZ$1.09 = A$1.00 (ref SMH, 28 June 1997)

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Table 7.9 - Service lives of structures assumed by MR WA for depreciation purposes

Generic Structure Type

Specific Structure Type

Environment

Assumed Average

Service Life

Timber bridges Timber bridges All 60 years

Refurbished timber bridges (from the date of concrete overlay construction)

All 50 years

Timber stingers and reinforced concrete slabs

All 100 years

Concrete and steel bridges

Concrete and steel road bridges All 100 years

Concrete steel and footbridges All 100 years

Concrete pedestrian underpasses all 100 years

Corrugated steel pedestrian underpasses

all 100 years

Concrete Pipe Reinforced concrete pipe culverts non-aggressive 75 years

Culverts Reinforced concrete pipe culverts aggressive 55 years

Reinforced concrete box

Small box culverts (spans <= 1.2m) manufactured prior to 1985

non-aggressive 60 years

culverts Small box culverts (spans <= 1.2m) manufactured prior to 1985

aggressive 35 years

Small box culverts (spans <= 1.2m) manufactured after 1985


Small box culverts (spans <= 1.2m) manufactured after 1985

aggressive 55 years

Large box culverts (spans > 1.2m)manufactured prior to 1985


Large box culverts (spans > 1.2m)manufactured prior to 1985

aggressive 45 years

Large box culverts (spans > 1.2m) manufactured after 1985


Large box culverts (spans > 1.2m) manufactured after 1985

aggressive 70 years

Corrugated Steel non-aggressive 65 years

metal pipe Steel aggressive 30 years

culverts Aluminium all 100 years

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APPENDIX 8

Main Roads WA Program Performance Indicators

using Road Infrastructure Asset Valuation

Valuation of


(September 1999)

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APPENDIX 8

Main Roads WA Program Performance Indicators using Road Infrastructure Asset Valuation

Indicator 1.3A - Asset Value and Vehicle Travel

0

0.2

0.4

0.6

0.8

1

93/94 94/95 95/96 96/97

Financial Year (National & State roads only - 1997 dollars)

VKT

per $

of R

oad

Net

wor

k A

sset

Val

ue

Indicator 1.3B - Asset Value and Freight

0

0.3

0.6

0.9

1.2

1.5

93/94 94/95 95/96 96/97

Financial Year (National and State roads only - 1997 dollars)

Tonn

e-km

per

$ o

f Roa

d N

etw

ork

Ass

et V

alue

The overall effectiveness of the road network in Western Australia can be assessed by comparing the amount of travel and freight on National Highways and State Roads with the value of those roads.

Such a comparison can provide an indication of the return on the public’s investment in the road network.

Indicator 1.3A shows that there is little variation in the value of the asset and total vehicle travel on National and State Roads.

Indicator 1.3B shows a steady increase in the amount of freight hauled on the network compared with the growth in asset value over the same period. This highlights the relatively rapid growth in freight on Western Australian roads.

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APPENDIX 9

Extracts from RTA NSW Annual Reports

to 30 June 1995, 30 June 1996 and 30 June 1998 on depreciation

Valuation of


(September 1999)

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ASSESSING THE USEFUL LIFE OF AN ASSET FOR DEPRECIATION PURPOSES

1. Extract from the RTA NSW 1995 Annual Report (p45) DEPRECIATION POLICY Infrastructure The existing Accounting Standard AAS4 - “Depreciation of Non Current Assets” outlines factors which should be considered in assessing the useful life of an asset for depreciation purposes. These factors include wear and tear from physical use and technological and commercial obsolescence. In the case of road infrastructure the dominant factor in the loss of service potential is wear and tear from physical use. AAS4 is not considered appropriate for the raising of depreciation expense against the Authority’s infrastructure assets which comprise a network of roads and bridges which vary across a range of pavement types, terrain and usage factors. It is not possible to determine the “useful life” of these long lived assets with any degree of certainty and it is considered that depreciation expenses based on this concept would not provide useful information for the management of the assets nor for external users of the Authority’s financial statements. To address this situation, the Authority has developed an industry methodology and approach which is considered to provide an appropriate disclosure of the loss of service potential of the infrastructure assets. The basis of this methodology has been subject to ongoing review and has involved the determination and disclosure of a Provision for Asset Restoration and, prior to 1993/94, the disclosure (by way of a note only) of a 1% Provision for Asset Renewal. This latter provision was intended to provide for the technological obsolescence of the road network. While it is acknowledged that technological obsolescence does occur to some extent in road infrastructure the evidence available suggests that it is not material, especially when compared to the impact of physical wear and tear. It has therefore been determined that, at this time, physical wear and tear as measured by the Provision for Asset Restoration, will form the basis for the assessment of depreciation of Authority infrastructure. Provision for Asset Restoration This provision recognises the expense each year of normal wear, tear and deterioration which has occurred since the base year in 1989/90 when the Authority’s infrastructure was first capitalised and the written down value brought to account. The annual movement in this provision is calculated from the Authority’s Pavement Management System (PMS) which is used to collate, consolidate and calculate road network data which facilitates the measurement of both the movement in condition and replacement cost of the road network. The total amount of this provision represents the movement in condition since the base year.

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2. Extract from the RTA NSW 1996 Annual Report (p48) ASSET MANAGEMENT POLICY Authority Infrastructure The existing Accounting Standard AAS4 - “Depreciation of Non Current Assets” outlines factors which should be considered in assessing the useful life of an asset for depreciation purposes. These factors include wear and tear from physical use and technological and commercial obsolescence. In the case of road infrastructure the dominant factor in the loss of service potential is wear and tear from physical use. While it is acknowledged that technological obsolescence does occur to some extent in road infrastructure the evidence available suggests that it is not material, especially when compared to the impact of physical wear and tear. It is not possible to determine the “useful life” of the majority of these long lived assets with any degree of certainty and it is considered that depreciation expenses based on this concept would not provide useful information for the management of the assets nor for external users of the Authority’s financial statements. To address this situation, the RTA has developed an industry methodology and approach which is considered to provide an appropriate disclosure of the loss of service potential of roads. Formerly referred to as the provision for asset restoration (refer Note 2(ii) c), the provision for depreciation recognises the total accumulated depreciation of the road asset due to wear, tear and deterioration as at 30/6/96. The calculation is based on the total cost to restore the road network from its current condition to near new. The annual movement in this provision is calculated from the RTA’s Pavement Management System (PMS) which is used to collate, consolidate and calculate the road network data which facilitates the measurement of both the movement in condition and the replacement cost of the road network. In the case of bridges, the current methodology is based on a formula of age and construction type augmented with information gained from an ongoing bridge inspection program. The RTA is implementing a Bridge Information System (BIS) which includes the collection and recording of relevant condition data. This information will form the basis of a review of depreciation rates for implementation in 1996/97. A provision for depreciation of bridges has been raised in the accounts for the first time this year for consistency with roads.

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3. Extract from the RTA NSW 1998 Annual Report (pp 54 & 55) ASSET MANAGEMENT POLICY (iii) Authority Infrastructure The RTA, being responsible for the development and management of the State’s road network, has recognised the control aspect of some infrastructure assets and the ownership of other infrastructure assets when formulating policy in respect to the valuation and reporting of infrastructure. The valuation policies provide for roads and bridges to be valued using the written down replacement cost method. Each road is assigned a value which equates to the cost of replacing that road to its current condition, without improving the road. In the case of bridges, such replacement cost is based on the structural type. This valuation method has been adopted because it reflects the current minimum economic valuation of the infrastructure. The RTA’s traffic control signal network is valued using written down replacement cost. The determination of road, bridge and traffic control signal infrastructure valuations is carried out annually by suitably qualified engineers of the RTA. In respect of land under roads and within road reserves, valuations are assessed according to the average rateable value per hectare of urban and rural areas within each local Government Area. Such valuations are undertaken annually by RTA’s registered valuers. Major works in progress are valued at construction cost and exclude the cost of land, which is currently disclosed as land under roads. The existing Accounting Standard AAS4 - “Depreciation of Non Current Assets” outlines factors to be considered in assessing the useful life of an asset for depreciation purposes. These factors include wear and tear from physical use and technological and commercial obsolescence. In the case of road infrastructure the dominant factor in the loss of service potential is wear and tear from physical use. While it is acknowledged that technological obsolescence does occur to some extent in road infrastructure the evidence available suggests that it is not material, especially when compared to the impact of physical wear and tear. It is not possible to determine the “useful life” of the majority of these long lived assets with any degree of certainty and it is considered that depreciation expenses based on this concept would not provide useful information for the management of the assets nor for external users of the Authority’s financial statements. To address this situation, the RTA has developed an industry methodology and approach which is

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considered to provide an appropriate disclosure of the loss of service potential of roads. The provision for depreciation recognises the total accumulated depreciation of the road asset due to wear, tear and deterioration as at 30/6/98. The calculation is based on the total cost to restore the road network from its current condition to near new. The annual movement in this provision is calculated from the RTA’s Pavement Management System (PMS) which is used to collate, consolidate and calculate the road network data which facilitates the measurement of both the movement in condition and the replacement cost of the road network. In the case of bridges, the current methodology is based on a formula of age and construction type augmented with information gained from an ongoing bridge inspection program. The RTA is implementing a Bridge Information System (BIS) which includes the collection and recording of relevant condition data. This information will form the basis of a condition based depreciation methodology which is consistent with the approach taken in respect of roads. (iv) Private Sector Provided Infrastructure The RTA has recognised an infrastructure asset in respect of the Sydney Harbour Tunnel. It has been valued at the present value of the estimated written down replacement cost of the Tunnel at the date of transfer to the RTA in 2022. In respect of the M2, M4 and M5 Motorways, the RTA values the asset by reference to the RTA’s emerging share of the written down replacement cost of each asset apportioned over the respective period of the concession agreement.

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APPENDIX 10

DIER Tas approach to asset valuation:

Summary report following 1996/97 review Extracts from Finance Policy Manual

Valuation of


(September 1999)

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— 75 —

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— 80 —


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APPENDIX 11

Responses to Questionnaire issued with the June 1998 draft of this report

Valuation of


(September 1999)

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Responses to Questionnaire

Austroads Project No BS.A.70 The Use of Asset Valuation

Compiled during preparation of a report for Austroads on Valuation of Road Infrastructure Assets in Australia and New Zealand (Austroads Project BS.A.70) by

Laurie Dowling Ph: 02 4926 5194 28 Wrightson Avenue Fax: 02 4929 7651 NEWCASTLE NSW 2300 E-Mail: [email protected]

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Preamble Responses to this questionnaire were used in 1998 to finalise an Austroads report on the benefits of valuing road infrastructure assets, prepared under Austroads Project BS.A.70. The report is nearing completion, and is expected to be submitted to the Project Manager (Michael Bushby, RTA NSW) and the Program Manager, Business Systems (Rolf Lunsmann, RTA NSW) during January 1999. The likely title is Valuation of Road Infrastructure Assets in Australia and New Zealand. The Charter for Austroads Project BS.A.70 is in Appendix 1 to the report. The time and effort spent in completing this questionnaire are very much appreciated. The following abbreviations are used in this summary:

DMR Qld Department of Main Roads, Queensland

DIER Tas Department of Infrastructure, Energy and Resources, Tasmania

MR WA Main Roads Department, Western Australia

RTA NSW Roads and Traffic Authority, New South Wales

T SA Transport South Australia

VicRoads The Roads Corporation of Victoria

TNZ Transit New Zealand

DCC Devonport City Council

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Question 1 Performance indicators

Does your organisation use asset value as an input for any Performance Indicator which is not already in Table 4 in the June 1998 draft? If so, please provide brief descriptions for inclusion in Section 6.5, Table 4 and/or Appendix 8.

Responses have been used to complete Clause 6.5 and Table 4 in the January 1999 draft of the Austroads report.

Question 2 Benefits of valuation

Does your organisation gain benefits from valuation information that are not covered in Section 10 in the June 1998 draft?

Can Section 10 be amended to better reflect any benefits to your organisation from the valuation process? If so, how?

The responses to this question have been incorporated in Clause 10 in the January 1999 draft of the Austroads report.

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Question 3 Asset classes Four main categories presently in use, as defined in the 1994 Austroads report Capitalisation of Infrastructure, viz

• Land under roads and within road reserves • Work in progress • Roads and bridges • Privately funded road infrastructure assets.

Would your organisation support establishing a number of standard sub-categories for recognition of infrastructure assets in financial reports, for example bridges, earthworks, pavement, traffic signals, intelligent transport systems, surplus land, land held for future infrastructure, etc? See Section 6.3 and Table 2 in the June 1998 draft. Any such list of standard sub-categories would be subsidiary to and would not alter the four main categories defined by Austroads.

DMR Qld Yes. Further work is required to ensure that the DMR could capture and value data at this level.

DIER Tas Yes. This seems a good idea. However the fewer sub-categories there are the better because we do not separately assess values of lighting, ITS systems, etc.

MR WA MRWA reports on earthworks, pavements (including seal, drainage and kerbs), bridges, road furniture, land within road reserves and work in progress. Data for sign valuation is available only for metropolitan area.

RTA NSW No, not initially. The cost of collecting this information in sub-categories has to be commensurate with the benefit derived from the use of the information.

T SA TSA is not opposed to the existing four asset categories but does maintain other non road assets (eg, marine and others) which could be useful for TSA to have additional asset classes. TSA supports a number of standard sub-categories - this is particularly useful under the “roads and bridges” category.

VicRoads VicRoads would support establishing a number of standard sub-categories for recognition of infrastructure assets.

TNZ The main categories need review to separate roads and bridges. Formation should also be separate, because it represents a sunk cost, with ongoing asset management primarily related to pavement. Work in Progress represents approximately 2.5% of TNZ’s asset value. Therefore is Work in Progress sufficiently material to warrant separate identification?

DCC No response

Comments: 1. Within the Austroads category “roads and bridges”, those agencies which responded (listed above)

already recognise roads and bridges separately. Each agency’s definition for “bridge” is in Table 7.6 in the draft Austroads report.

2. Only TNZ has queried the merit of “work in progress” as a distinct category. Reference to Appendix 5 shows that “work in progress” represents less than 5% of the replacement value of roads and bridges.

3. There appears to be scope for agreement to standardise significant sub-categories such as pavement and traffic control equipment.

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— 90 —

Question 4

Are there any references to the practices of your organisation in the June 1998 draft which you consider to be incorrect, or that you consider should be amended? If so, please provide details. (A marked up copy will suffice).

The responses to this question have been incorporated in the January 1999 draft of the Austroads report.

Question 5 Cost indices

Does your organisation use an index which is not included in Table 6 and Figure 7 in the June 1998 draft?

If so, please provide details for inclusion in Table 6 and Figure 7.

If an index is not used, please describe how values are updated between revaluations.

The responses to this question have been incorporated in Clause 5.2 in the January 1999 draft (Figure 7, and Table 2).

Comment: DMR QLD, RTA NSW, Transport SA and Transit NZ maintain cost indices. Main Roads WA uses indices issued by ABS and Rawlinsons. BTE also maintains its own “Road Construction and Maintenance Price Index”. Differences in movements in these indices over time appear to be marginal, and so consideration could be given to some rationalisation, perhaps multi-lateral adoption of a common index maintained by BTE, ABS or ARRB TR.

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— 91 —

Question 6 Replacement cost vs reproduction cost In determining the written down current cost of road and bridge assets, does your organisation distinguish between “replacement” and “reproduction” costs as described in Section 3.3 (c) in the 1994 Austroads report Capitalisation of Infrastructure?

For example, in estimating the replacement value of a bridge, do you allow for improvements to satisfy current standards - geometric standards, hydrology standards? Or, in estimating the replacement value of a road, do you allow for improvements to satisfy current width standards where the existing road is narrower than a modern equivalent?

Which do you use - replacement or reproduction? Any reason?

Is the same used for all road and bridge assets?

DMR Qld Our valuation methodology is based on replacement cost. Qld Treasury guidelines define “current replacement cost” as the cost per unit of future economic benefits of the most appropriate modern replacement facility. It applies where the asset being valued would be replaced at balance date by a different asset in terms of scale and technology.

Use of current replacement cost is valid where a similar asset is not available or is available but is technologically outdated. For roads, replacement costs are the costs incurred when replacing and existing segment with a new segment, based on current technology, including construction and administration costs.

For structures, replacement costs are the costs incurred when replacing an existing structure with a new structure, based on current technology. For example, where a one lane timber bridge is to be replaced by a one lane concrete bridge, there is no change in functionality of the new replacement asset, and accordingly, no discontinuity of the replacement cost needs to take place even though the new concrete structure may have a greater load carrying capacity than the existing timber bridge.

DIER Tas Replacement costs are used for both roads and bridges, based on existing configurations with no allowance for improvements.

(One of the influences is the difficulty in objectively measuring improvements across the network, and then having them accepted by the Auditor-General.)

MR WA The road and bridge asset is generally valued at reproduction cost although it may be argued that the distinction between reproduction cost and replacement cost is not clear cut because improvements in technology are reflected in current contract rates. The one clear exception to the use of reproduction costs is timber bridges. Replacement cost is used for timber bridges because MR WA no longer builds timber bridges. The cost reported represents the cost of an equivalent concrete structure with the same deck area.

RTA NSW Replacement cost is used.

It represents the actual replacement cost, not an idealised replacement cost.

Replacement cost is used for roads and bridges.

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TSA The basis for current valuations is replacement to the same standard for both roads and bridges.

It is also TSA policy that the valuation of replacement pavement includes reuse of retained pavement. This in effect recognises any residual value of the old pavement being replaced through a cheaper replacement cost, and allows the use of tendered prices where some residual pavement is incorporated into the replacement pavement.

This is also the case for drainage and earthworks, as a consequence replacement costs may be under-estimated. The method of carrying out this valuation requires some clarification to be consistent with other states.

Replacement costs are calculated every 3 years using current unit rates. Every other year the replacement cost is calculated using cost indices. The unit rate based replacement cost (every 3 years) is checked against the cost index based replacement cost to track the reliability of the cost indices.

TSA acknowledges using road construction unit rates to value replacement costs may be limited due to the low number of replacement projects on a mature network.

VicRoads For all infrastructure assets, VicRoads works on the basis of replacement cost using:

• current service capacity, and • modern technology.

TNZ TNZ uses replacement cost, but current construction techniques are allowed for. Improvements to satisfy current standards of service (eg, road alignment or width, bridge waterway area) are not allowed for, except for pavement thickness, with replacement value determined on the basis of current traffic volumes and composition, using the Austroads Pavement Design Guide.

The same method is used for roads and bridges.

DCC DCC uses deprival value, that is replacement value using current materials and methods. DCC would value a deficient asset at existing standard and not a desired upgraded standard.

Comment: The 1994 Austroads report Capitalisation of Infrastructure gives the following definitions in Clause 3.3 (c) - Valuation Policies for Roads and Bridges:

Reproduction cost: determined by calculating the current cost of constructing or acquiring a copy of the existing asset. Replacement cost: the current cost of the service potential; of the most appropriate modern equivalent asset. Unit costs of constructing a reference asset are applied based on the physical quantities and useful life of the existing asset.

It appears MAs do not make a clear distinction between replacement and reproduction in this context, with the mostly used word being “replacement”, whereas, on the basis of these definitions, most MAs actually use “reproduction” cost to determine the written down value of roads and bridges.

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— 93 —

Question 7 Ensuring that financial statements are of benefit to users

What form of estimating current written down value does your organisation regard as best suited to ensuring that financial statements are of benefit to users of those financial statements?

DMR Qld Straight line adjusted for known material reductions in useful lives. That is, roads and bridges which are to be replaced as part of the Pacific Motorway project are being fully depreciated over the next 3 years.

DIER Tas As described in Table 3 in the draft Austroads report.

MR WA Written down value is calculated as the depreciated replacement/reproduction value (refer also to Q 6).

RTA NSW Condition based means of estimation because most decisions on maintenance expenditure are driven by condition and not age.

T SA For both roads and bridges the current method of depreciation is straight line over an estimated economic life. Options for depreciation that will be debated by TSA shortly include the existing straight line method, condition based, and perhaps straight line based on periodic assessment of remaining useful life with condition used as one factor.

VicRoads Use of the deprival value concept (cost of replacing infrastructure assets if an entity is deprived of them).

TNZ “Optimised Depreciated Replacement Cost” (ODRC), that is the depreciated replacement cost, after allowances are made for over design, technological and functional obsolescence, surplus assets, and in some cases reconfiguration and relocation. The amount by which the optimisation process changes the valuation may be an indication of how perceived user needs have changed over time and the quality of past investment decisions.

ODRC is based on an estimate of the replacement cost. Given the size of the roading network and the variety of assets to be valued, an ODRC valuation would be an extremely complex, lengthy and expensive undertaking.

The experience in NZ across all the infrastructure sectors that have undertaken and ODRC based valuation has been the reduction in value from that determined on a pure DRC basis. A similar experience could occur in an ODRC valuation of roads. By definition optimisation is all about providing the same level of service in the least expensive manner, by eliminating surplus capacity, obsolescence, over design, less than optimal routes, including duplication. Where part of the network is substandard, the work required to bring it up to standard can only be captured in the valuation once it has been carried out.

DCC DCC uses actual costs or estimates for annual revaluations. Dollar values must reflect the actual physical condition to be of benefit to users.

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— 94 —

Question 8 Costs of service adjustments and traffic control

Does your organisation include costs such as service adjustments and traffic control in its estimation of replacement cost for road assets? [It is acknowledged that the value of services (eg, water reticulation, communications, energy lines, etc) which are not controlled by the road organisation should not be included in the value of road infrastructure.]

DMR Qld Yes.

DIER Tas Replacement cost is based on total project costs which include the cost of associated minor activities such as service adjustments and traffic control.

MR WA No.

RTA NSW Traffic control is included as part of the all-up unit rates for road construction, but not utility adjustment or property adjustments or land.

Traffic control is regarded as a necessary cost similar to survey, design, geotechnical investigations, supervision, etc.

TSA Costs of service alterations are excluded from the valuation. These costs are often significant, but do not add value to the asset, and are sunk costs. TSA needs to explore this further as ignoring these costs on replacement would under-value individual projects.

Costs of traffic control during construction are excluded from the valuation.

VicRoads VicRoads does not include costs such as service adjustments and traffic control in the valuation of infrastructure.

TNZ No.

DCC No.

Comment: With two “yes”, five “no” and one mixed response, there is scope for review of this aspect, which potentially could have a significant impact on valuations in urban areas.

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— 95 —

Question 9 Work in progress What criteria does your organisation use to identify expenditure which is recognised as “work in progress”?

DMR Qld The Capital Work in Progress figure represents incomplete Roads and Bridges under construction (or work which represents a capital improvement which will be capitalised to the asset). When roads/bridges are open to traffic the completed costs per project are transferred to "completed" infrastructure assets. This is an annual event and occurs at 30 June each year.

DIER Tas DIER Tas includes only those works involving a deviation as “work in progress”, because works on existing alignment return incremental benefits to customers as the work proceeds.

Expenditure on these works is recognised as “work in progress” until the works are opened to the public.

MR WA Work in progress is that work which extends beyond one year.

RTA NSW Capital works projects with a value greater than A$5m.

T SA “Work in progress” is work that continues beyond one year.

VicRoads VicRoads selects only those works involving a deviation.

TNZ Transit New Zealand does not use the “work in progress” category in its financial reporting.

DCC All capital work is work in progress until capitalised.

Comment: Except for TNZ which does not use the “work in progress” category, practice appears to be generally consistent with works capitalised at the next balance date after completion or opening to traffic, including partial opening to traffic, except that RTA NSW uses the “work in progress” category only for works valued at more than A$5m, while DIER Tas and VicRoads uses the “work in progress” category only for deviations (ie, works where it is clear that traffic derives no benefit until the works are completed).

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— 96 —

Question 10 Work in progress

For work extending over more than one year, is “work in progress” recognised and reported in historical (“out turn”) dollars or indexed to current year dollars?

DMR Qld Recorded at historical dollars.

DIER Tas Historical or out-turn dollars, not indexed.

MR WA “Work in progress” is reported in historical dollars.

RTA NSW Indexed through inflation adjustment to present year dollars.

T SA Work extending over more than one year is reported as historical and not indexed.

VicRoads In this situation, “work in progress” is recognised and reported in historical dollars.

TNZ Transit New Zealand does not use the “work in progress” category in its financial reporting.

DCC DCC reports work in progress carried over to the following year at historical cost. Ideally this should be part of current cost adjustments.

Comment: RTA NSW is the only respondent which indexes amounts recognised as “work in progress” which carry forward from one year to the next.

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— 97 —

Question 11 Work in progress

When does your organisation capitalise “work in progress” - eg, at the time of opening to traffic, at practical completion, or when finally completed?

DMR Qld When open to traffic.

DIER Tas When open to traffic.

MR WA When physical works are complete.

RTA NSW When open to traffic. However, bridges that are completed may be capitalised if they form part of traffic staging.

T SA Capitalisation occurs at contract practical completion or when the road is open to traffic. This information is collected through a formal procedure at asset handover.

VicRoads At the time of opening to traffic.

TNZ Work in progress is capitalised in the year costs are incurred.

DCC Work is capitalised when it is completed, or when put into service whichever comes first. DCC capitalises subdivisions (donated assets) when accepted at practical completion (on to maintenance period).

Comment: Except for TNZ which does not recognise or report “work in progress” as a separate category, there is uniformity in this aspect of road infrastructure valuation.

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— 98 —

Question 12 Land and work in progress

How does your organisation recognise land under work in progress - as part of “work in progress”, or as “land under roads”?

DMR Qld Neither. Land is expensed when construction commences.

DIER Tas All land is included in “land under roads”.

MR WA In the majority of cases, land under work in progress is reported under separate asset category “land acquired for roadworks” until physical works are complete. The exception being when land is resumed immediately prior to the commencement of physical works and the works extend for more than one year. The land is reported as part of “work in progress” on these occasions.

RTA NSW RTA NSW has recorded land under work in progress as land under roads since 30 June 1996 (cf page 48 in RTA NSW Annual Report, 1996).

T SA Land under roads is capitalised upon acquisition as a separate asset category, therefore land purchased for roadworks is not part of “work in progress”.

VicRoads Land under work in progress is recognised as part of “work in progress”.

TNZ As land under roads.

DCC

Comment: Except for DMR Qld where land is expensed, there is uniformity in this aspect of the road infrastructure valuation process.

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— 99 —

Question 13 Changes being considered to valuation methodology

Is your organisation considering any changes to improve valuation methods and processes?

If so, please briefly describe.

DMR Qld DMR Qld is continually moving to improve the valuation methodology and processes. But we are mindful of the costs of continual improvement for an outcome which is predominantly geared to external financial reporting requirements.

An example of one of the improvements currently being explored is the use of forward planning forecasts to estimate remaining useful lives of individual road sections based on obsolescence. A pilot of 1 of 14 Districts was undertaken in 1997/98 and further work is planned in 1998/99.

DIER Tas The road replacement cost method, now in place is to be reviewed annually.

A working party is currently reviewing the bridge valuation process.

MR WA MR WA is moving to improve the valuation model by including additional condition information such as rutting in the deterioration model.

RTA NSW Yes. Improvements under consideration include:

• bridge capitalisation based on condition rather than age, and

• pavement capitalisation based on a new condition based method.

T SA TSA is continuously moving to improve our valuation processes. Information contained in Figures 4, 5 and 6 of this Report may indicate inconsistencies with road agencies in other States. TSA intends to explore this.

TSA is also considering internal processes for capitalisation and periodic revaluations.

TSA is currently evaluating moving towards a condition based depreciation model rather than a straight line model. Benefits of this shift for TSA would be to establish a clearer link between asset accounting and asset management.

VicRoads VicRoads is considering refining aspects of the valuation model, such as land under roads and the use of cost indices.

TNZ Yes. Improvements under consideration include:

• optimisation of depreciation (see Q 7),

• improvements to the estimation of remaining life, and

• incorporation of valuation in asset management.

DCC No

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— 100 —

Question 14 Additional uses of valuation information Is your organisation considering any additional uses of valuation information?

If so, please briefly describe.

DMR Qld None at this stage.

DIER Tas Intend to consider incorporating valuation information into internal indicators, as done elsewhere.

MR WA Trends in road expenditure, for example as a percentage of asset value, can be used for determining the efficiency of the program.

RTA NSW To assist in making decisions on maintaining or replacing bridges.

TSA Could be used more broadly such as in whole of government budget negotiations, but no action at this stage in this direction.

VicRoads The uses for valuation information are growing all the time. The methodologies used by VicRoads have been looked upon by other Departments and Local Government Authorities.

TNZ Yes. Asset management planning.

DCC No.

Question 15 Descriptions of valuation methods Would your organisation be in a position to provide descriptions of valuation methods for incorporation in a possible compendium of road agency valuation methodologies? It is envisaged that existing material would be used, without a requirement that new material be prepared.

DMR Qld Yes. Would be more than happy to participate.

DIER Tas Yes.

MR WA Yes.

RTA NSW Yes - the procedures are documented.

TSA Can provide descriptions of valuation methods.

VicRoads Yes.

TNZ Yes.

DCC Yes, if required.

Comment: Should we proceed to compile such a compendium of current practice, or is it adequate for individuals to make contact with other MAs as required?

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Question 16 Is there any other comment you would like to add?

DMR Qld DMR Qld is very supportive of the current work being undertaken by Austroads in this area and is keen to be involved with a view to moving towards a uniform approach for recording and valuing road infrastructure in Australia.

DIER Tas No.

MR WA Valuation of land under roads: MR WA is in general agreement with the treatment proposed in Appendix 4 and currently uses average values, it is our view that the objective should be to move to using the current market value of the land immediately adjacent to the road reserve to value land under roads and within the road reserve. The change should occur when the technology is available to gather and process the data at a reasonable cost.

RTA NSW There is a need to ensure that asset management practice and resource allocation practice are consistent with valuation methods. Otherwise, if only consistent with accounting, the information will not be very relevant.

TSA Figure 6 in the June 1998 draft report tends to suggest that TSA’s road and bridge assets are over 50% run-down which appears high compared to other States.

TSA’s asset depreciation and valuation methods need to be challenged with further research and development required to transform current practices such that valuations produced are reliable, in a meaningful format and can be used as quality intelligence in asset management.

The current benefits of our asset valuation process are still to be realised.

VicRoads No.

TNZ Guidelines are needed to give a consistent approach between agencies.

The method of depreciation needs to be reviewed and agreed upon.

Optimising the network needs to be considered as it is the method of valuation along with a more earnings based approach that are used for evaluating the rates of return for infrastructure monopolies.

DCC We would support a valuation method for land under roads and within road reserves (we do not distinguish between them) whereby land is valued at the Valuer-General’s average rateable value per hectare for the urban and non-urban sectors in each local government area. Average rateable value per hectare is supplied by the Valuer-General and is based on adjacent land use type. We interpret this to mean an average over the whole Council area for urban and non-urban land values applied to the area of roads in each classification.

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— 102 —

APPENDIX 12

Extract from VicRoads Annual Report to 30 June 1998 on depreciation

Valuation of


(September 1999)

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— 105 —

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— 106 —

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INFORMATION RETRIEVAL

Austroads (1999), Valuation of Road Infrastructure Assets in Australia and New Zealand: Sydney, A4, 117pp, AP-144/00.

KEYWORDS: Accounting, bridge management, capitalisation, depreciation, financial statements, infrastructure, inventory, investment, pavement evaluation, road management, valuation

SUMMARY This report examines current practices by State road agencies in Australia and by Transit New Zealand in valuation of road infrastructure assets. Areas of consistency and inconsistency are identified. The report focuses on the potential for infrastructure valuation to assist road agencies in formulating asset management strategies which will meet the needs of road users while minimising the long term costs of providing and maintaining the road networks. Valuation information is described from an asset management perspective, complementing the traditional accounting perspective on capitalisation. The potential benefits to a road agency from both the valuation process and the resulting information are articulated. Further study is necessary of the relative potential for condition based and age based depreciation of road pavement assets to be an effective input to road asset management decisions. A number of other directions for future action are identified for consideration as part of the intended Austroads review of valuation methods for road infrastructure elements.

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AUSTROADS PUBLICATIONS Austroads publishes a large number of guides and reports. Some of its more recent publications are: AP-1/89 Rural Road Design AP-2/90 Design of Sprayed Seals AP-8/87 Visual Assessment of Pavement Condition Guide to Traffic Engineering Practice

AP-11.1/88 Traffic Flow AP-11.9/88 Arterial Road Traffic Management AP-11.2/88 Roadway Capacity AP-11.10/88 Local Area Traffic Management AP-11.3/88 Traffic Studies AP-11.11/88 Parking AP-11.4/88 Road Crashes AP-11.12/88 Roadway Lighting AP-11.5/88 Intersections at Grade AP-11.13/95 Pedestrians AP-11.6/93 Roundabouts AP-11.14/99 Bicycles AP-11.7/88 Traffic Signals AP-11.15/99 Motorcycle Safety AP-11.8/88 Traffic Control Devices

AP-12/91 Road Maintenance Practice AP-13/91 Bridge Management Practice AP-14/91 Guide to Bridge Construction Practice AP-15/96 Australian Bridge Design Code AP-17/92 Pavement Design AP-18/96 RoadFacts 96 AP-22/95 Strategy for Pavement Research and Development AP-23/94 Waterway Design, A Guide to the Hydraulic Design of Bridges, Culverts & Floodways AP-26/94 Strategy for Structures Research and Development AP-29/98 Austroads Strategic Plan 1998–2001 AP-30/94 Road Safety Audit AP-34/95 Design Vehicles and Turning Path Templates AP-36/95 Adaptions and Innovations in Road & Pavement Engineering AP-38/95 Guide to Field Surveillance of Quality Assurance Contracts AP-40/95 Strategy for Ecological Sustainable Development AP-41/96 Bitumen Sealing Safety Guide AP-42/96 Benefit Cost Analysis Manual AP-43/98 National Performance Indicators AP-44/97 Asphalt Recycling Guide AP-45/96 Strategy for Productivity Improvements for the Road Transport Industry AP-46/97 Strategy for Concrete Research and Development AP-47/97 Strategy for Road User Cost AP-48/97 Australia at the Crossroads, Roads in the Community — A Summary AP-49/97 Roads in the Community — Part 1: Are they doing their job? AP-50/97 Roads in the Community — Part 2: Towards better practice AP-51/98 Electronic Toll Collection Standards Study AP-52/97 Strategy for Traffic Management Research and Development AP-53/97 Strategy for Improving Asset Management Practice AP-54/97 Austroads 1997 Bridge Conference Proceedings — Bridging the Millennia AP-55/98 Principles for Strategic Planning AP-56/98 Assessing Fitness to Drive AP-57 & 58/98 Cities for Tomorrow — Better Practice Guide & Resource Document AP-59/98 Cities for Tomorrow — CD AP-60/98 Guide to Stabilisation in Roadworks AP-61/99 Australia Cycling 1999-2004 — The National Strategy AP-62/99 e-transport — The National Strategy for Intelligent Transport Systems AP-63/00 Guide to the Selection of Road Surfacings These and other Austroads publications may be obtained from: ARRB Transport Research Ltd Telephone: +61 3 9881 1547 500 Burwood Highway Fax: +61 3 9887 8144 VERMONT SOUTH VIC 3131 Email: [email protected] Australia Website: www.arrb.org.au or from road authorities, or their agent in all States and Territories; Standards New Zealand; Standards Australia & Bicycle New South Wales.

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AP-144 00 Valuation of Road Infrastructure Assets in Australia and New Zealand

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Transcript of AP-144 00 Valuation of Road Infrastructure Assets in Australia and New Zealand