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Rural and Regional Affairs and Transport References Committee
16/06/2017
Australia's rail industry

THOMSON, Dr Stuart James, Chief Executive Officer, Rail Manufacturing Cooperative Research Centre Limited

Committee met at 13:10

CHAIR ( Senator Sterle ): I declare open this public hearing of the Senate Rural and Regional Affairs and Transport References Committee. The committee is hearing evidence for its inquiry into Australia's rail industry. I welcome you all here today. This is a public hearing, and a Hansard transcript of the proceedings is being made. Before the committee starts taking evidence I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee.

The committee prefers all evidence to be given in public, but under the Senate's resolutions witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If a witness objects to answering a question the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground that is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may of course also be made at any other time.

On behalf of the committee I would like to thank all those who have made submissions and sent representatives here today for their cooperation in this inquiry. Dr Thomson, I invite you to make a brief opening statement, and then we will go to questions.

Dr Thomson : The Rail Manufacturing CRC is obviously a centre that is operated under the business Cooperative Research Centre program, which is administered by the Department of Industry, Innovation and Science. We were established in 2014 with the objective of promoting or co-funding innovation and research and development in the rail manufacturing sector. The centre has a life span of six years and will end in 2020.

The impetus for establishing the CRC stemmed really from a set of processes conducted under the former rail advocate, Bruce Griffiths, which convened a technology road map over a 30-year period, titled On Track to 2040. This set a number of goals and objectives, particularly around the technical road map that was utilised to set up the CRC. All the priorities and the key outcomes from that were industry led, so it was the convening of industry members that resulted in that road map being established, and out of that road map one of the outcomes was that the CRC was established—or bid for an subsequently established.

Just to quickly describe what a CRC is, we are a member based organisation, so we have two types of members. We have industry members and we also have universities and publicly funded research establishments that form our core base. And our prime objective is twofold. One is to act as a catalyst to promote, within the sector, research and development and the adoption of innovation, and the second is to assist in training the next generation of postgraduate-qualified STEM practitioners for the rail industry.

Our submission to the committee is focused primarily on advancing the cause of research and development, as you would expect; the development and implementation of innovation within the sector; and helping to train the next generation of highly skilled professionals. In developing our proposal, there are several challenges and opportunities facing the rail manufacturing sector, which we have focused on. The key opportunities within the sector are likely to stem from an increased pipeline from passenger rail infrastructure, particularly those on the eastern seaboard.

We think this passenger rail infrastructure and rolling stock procurement process provides an opportunity for the rail sector to grow a realisation and increase the potential for manufacturing and maintenance opportunities for local businesses. It has the opportunity to increase and move towards advanced manufacturing paradigms and so establish a broader base of technology within current manufacturing organisations. And, quite frankly, a continuous pipeline will promote confidence in industry and lead to capital investment as well as investment in innovation, research and development.

The key challenges in the recent past we believe stem primarily from peaks and troughs in demand for rolling stock and rail infrastructure. There is a lack of harmonisation between the states, which means that in the small market that we have already within Australia we are subdividing that into six or seven more-distinct marketplaces. The ongoing offshoring of traditional manufacturing activities and the complexities and changing nature of tenders, grants and funding programs can discourage participation, particularly in the SME community.

In developing a future path for Australia's rail manufacturing sector we believe there are some fundamentals that can be addressed that will support and promote the rail manufacturing sector. These include, firstly, the undertaking of a white paper for rail to explore the state of the Australian rail industry and the key questions of harmonisation and demand and the strategic initiatives that are needed to set the industry on a trajectory for growth and, secondly, the creation of a Commonwealth rail industry adviser position that would seek to facilitate engagement both within the states and in industry to promote a national agenda for innovation and global competitiveness in the Australian rail industry and to progress a national rail standards agenda.

With state and federal governments investing heavily in new rail projects there exists an opportunity for government and industry to work together to increase the level of high-value products and services that are offered by domestically based suppliers and to increase the local level of rail experience housed within Australia through the advent of an innovation dividend that would be tied to large infrastructure projects.

We believe that with each project's major investment there should be a tie back to letting the successful tenderers participate in innovation and enabling them to provide the next generation of technology that will feed into these major projects. This dividend would promote ongoing research and development in the rail sector and enable ongoing collaboration with existing innovation centres and the potential to create new centres of excellence in key technology fields. It would also support supply chain initiatives that would assist SMEs to enter the supply chain in rail and other transport sectors. Finally, we would advocate for the creation of a national innovation hub that would coordinate the adoption of new technology and innovation and assist industry as well as state and federal governments to identify strategic growth opportunities and to assist industry to enhance supply chain operations to the benefit of niche and advanced manufacturing businesses.

CHAIR: Well, Dr Thomson, everything you said just makes complete sense. It is just brain dead that we are not doing this. So, why are we here? This is unbelievable. I am not being smart, but it just makes too much sense.

Dr Thomson : Is that a rhetorical question?

CHAIR: No. It is just: what is hard about this? For crying out loud—with the greatest respect. I will flick to my colleague Senator Back.

Senator BACK: Thank you for your submission and for being here, Dr Thomson. You are three years into the six years of the CRC. You said it expires in 2020. So, what do you reckon you have achieved halfway through the life of the CRC?

Dr Thomson : I have participated in two CRCs. One was a CRC Mining, which was 20 years into its tenure when I joined, and this one, which is new. The paradigms between how the two operate are very different. Primarily, I think, CRC Mining had the same issues that we are experiencing within the rail sector and that is that innovation has probably not been at the forefront of the rail industry. Our task is to promote and support industry in developing the next generation of technologies and workers. I have seen how that has been implemented over a 20-year time span. It has been of benefit to the mining industry and we see that through the advent of all the technologies that have been developed through the boom-and-bust cycle of mining. Essentially, in the first three years of this CRC we aim to cement a process by bringing industry in to collaborate and to start thinking about the collaboration projects and to start to form a view and recognise that innovation is a requirement that is necessary for their future.

Senator BACK: Senator Carr is far more experienced than I am in this space, but my understanding of the concept of a CRC is that, coming towards the end of its life, the board makes a decision to apply for continued funding or if the purpose the CRC was set up for has been met and it is no longer needed it winds up—as you said, the mining one has gone on and on—or, if it has demonstrated that it is so essential, it morphs into an industry and government organisation beyond the CRC. So which of those three do you see your see your CRC ending up as being?

Dr Thomson : At the moment, following the Miles review, there is no capacity for us to renew. We would have to bid again as a new CRC and close this one down.

Senator KIM CARR: Or change the rules.

Dr Thomson : Or change the rules.

Senator BACK: Yes—or change the rules.

Dr Thomson : So we will not be rebidding again under the current time frame. I will state here that we were approved prior to the Miles review, otherwise we would have gone for a 10-year CRC, but essentially our drop-dead date is 30 June 2020. We will close the CRC down at that stage or we will continue to morph into a self-supported CRC.

Senator BACK: I guess that is my question. The best way for something to survive is to make sure that it does not rely on government in the long term. Do you see there being the capacity to morph into a self-sustaining organisation? When you got underway in 2014, there had not been the commitment to an inland freight rail from Brisbane down to Melbourne. I would have thought that would be music to the ears of you and your board members.

Dr Thomson : Of course.

Senator BACK: It also appears that Arrium is going to have a new owner, so its up-in-the-air status has hopefully now been resolved. Three years sounds like a long time; it is not. Are you, as the CEO, working towards a move to a permanent body that will take forward all of these objectives that you spelled out to us?

Dr Thomson : It is probably too early to make that decision at this stage. Either we will aim to continue in a new CRC format or, assuming the rules do not change, we will look to become a self-funded organisation. But I think, with a six-year time span, the focus that we have, primarily, is to deliver the projects that we have started. The decision will be made at the fourth or fifth year as to how we go forward—so it is too early.

Senator BACK: I am looking at the top of this page and there is a very impressive list of, as you say, excellent public research institutions, starting with CSIRO and going through to RMIT. You mentioned that you are representative of both industry and the R&D sector. Is there a list of industry groups that are members of the CRC? Can you take that on notice for us?

Dr Thomson : I can give them to you now, if you wish.

Senator BACK: If it is not going to take too long, because—

Dr Thomson : The major ones—and I apologise if I miss any—are: Downer; Bombardier; Sydney Trains, who just joined today; China rail, or CRRC, as an entity; Faiveley; Knorr-Bremse, who are one of the German manufacturers; and a number of SMEs as well. So we span the majority of rail manufacturers. Our other priority at the moment is to get some of the operators in to join, and Sydney Trains is the first operator that has joined. That covers the whole supply chain, I guess, from our perspective.

Senator BACK: I think the first objective of this committee is to see whether or not, in the same model as naval shipbuilding, which now has a 40- to 50-year life, we could see exactly the same for the rail industry. I will you ask you to comment on that. And finally, before the chair shuts me up: you make the recommendation of a rail industry adviser position. I guess I would ask the question: from within the CRC's resources, why haven't you already started somebody along that path?

Dr Thomson : I will start with that last question. The role of the advisor as we see it is far broader that just our remit. Our remit, as we are funded by the Commonwealth, is fundamentally focused on precommercialised research and development—that is, to deliver new innovation that industry can take forward and commercialise. The role of the rail advocate, as we would see it, or an adviser within that role, would be much broader than our remit. It would be covering technology but it would also be looking at harmonisation activities across the states. It would be looking at standards and creating a national approach not only to innovation but also to the way rail is run and the tender process that occurs between the states.

Sorry, I will have to ask you to repeat your first question.

Senator BACK: Well, I cannot remember it, but the secretary is going to remind me what it was.

CHAIR: After she reminds me too.

Senator BACK: I will pass to someone else and come back to it.

Senator KIM CARR: Thank you very much for appearing. I appreciate that you were able to come today. As they say, every parrot in every pet shop in the land throws around the word 'innovation'. Perhaps you could explain to us what, in the CRC's view, is meant by the term.

Dr Thomson : In terms of where we seek to co-fund projects, there is a minimal research threshold that we will invest in. At the moment within the rail manufacturing sector, because it is very early days for this organisation, we are seeing probably more scope on short-term research projects that will lead to innovations that will effectively help rail. Some of the areas we are funding in the short term are around materials and manufacturing—so looking at materials that can be adapted into the rail manufacturing area for lightweighting et cetera, manufacturing processes, automation et cetera, which I think are vitally important in going forward.

Secondly, we are seeing a greater focus on the digital world and Industry 4.0. We are starting to see the rail industries that want to take up that technology.

Senator KIM CARR: So you are looking at new technologies and new processes that can improve productivity in the industry; would that be a fair call?

Dr Thomson : Yes, that is correct.

Senator KIM CARR: To improve safety?

Dr Thomson : In some regards yes, but that is not our prime focus of course. There are several projects that we are involved in around condition based monitoring. We are also starting to look at digital means of taking—

Senator KIM CARR: So design?

Dr Thomson : Design, yes.

Senator KIM CARR: Improving design for improving capabilities, yes.

Dr Thomson : Looking at augmented and virtual reality for moving people out of rail corridors, for example, on the question of safety.

Senator KIM CARR: So you are not just talking about the carriages here. You are talking about rolling stock, you are talking about signalling—you are talking about the system?

Dr Thomson : Yes. Not signalling at this stage, but most of our projects are rolling stock or construction based.

Senator KIM CARR: But in an ideal world you would talk about signalling, given the age of our signalling systems in this country?

Dr Thomson : Yes, we would.

Senator KIM CARR: I am interested in asking these questions because I was the minister when the decision was made to set up the CRC—the round was actually before 2014—and manufacturing was set as one of the priorities. That has been lost. You say, of course, the rules have changed now, so you cannot reapply for money. In fact, under the current legislation, you have to wind up not at the end of the six-year term but a year before that. So you have only got two years.

Dr Thomson : For that process, yes.

Senator KIM CARR: That is the legal requirement. So you are going to have to bring together some decisions—unless there is a change of government at the next election, and we will change the rules. But that is essentially the pattern. Are you likely to get a private funder, given you say in your submission that the industry is so bad on this question of R&D and the industry has been so bad on the question of innovation?

Dr Thomson : I think without government assistance that it would be unlikely.

Senator KIM CARR: And so maybe the work you have done will be lost?

Dr Thomson : No, I would not say that. The work that we have done and the way that we have set up our contracts will ensure that the work is finished and, hopefully, adopted, bearing the outcome of that research and development.

Senator KIM CARR: You mentioned Bruce Griffiths, the rail advocate, and you are talking about an industry adviser. I presume they are the same thing. Are we talking about a similar sort of role?

Dr Thomson : I will skirt that. But, essentially, I think having someone within the process that can report to government and can be an advocate or an adviser for government and that can be a single point of contact for industry is a good thing.

Senator KIM CARR: Amongst their functions would be the capacity to chase contracts, would you agree?

Dr Thomson : To chase contracts or provide a catalyst that can ensure that there is harmonisation—that there is a strategy put across nationally in ensuring there is a continuous pipeline of projects.

Senator KIM CARR: That is right. But part of Bruce Griffiths' work was to actually be an advocate to ensure local content, for instance. Who does that work now? Who looks after local content, for instance, within the national rail system, if that role exists at all?

Dr Thomson : I do not think there is a role there at the moment.

Senator KIM CARR: Who does it?

Dr Thomson : In terms of?

Senator KIM CARR: Who actually argues on behalf of the industry within the council of governments about the need for local content?

Dr Thomson : It would be the peak bodies, I guess, who would represent the industry's interests and take that forward.

Senator KIM CARR: They do that, do they? I have not heard too much from them, that is all. Which peak bodies are we talking about?

Dr Thomson : The ARA, the Australasian Railway Association, and RISSB for the safety side.

Senator KIM CARR: The committee have agreed to have a roundtable, because one of the problems is we could not get them to make a submission. These advocates are a bit anxious about appearing in public, because their problem is that they are looking for work, presumably, and that is drying up because increasing amounts of work are going offshore and they are frightened of offending anybody. What sort of advocate is frightened of arguing a case in public?

Dr Thomson : You would have to ask them that question.

Senator KIM CARR: We will. We will, don't worry.

Senator BACK: That is why we are going to have them on a panel.

Senator KIM CARR: That is why we are going to have a private session—because we are concerned about this. Do you support the idea of the development of a national industry plan?

Dr Thomson : Certainly.

Senator KIM CARR: How broad do you think it would go? Would it go just to the manufacturing of rolling stock and rail, or would it go to the broader issue of the operations of the system as a whole?

Dr Thomson : This is outside my remit, or the RMCRC's remit, so this is a personal opinion, not one from the organisation. Essentially, yes, there is benefit to looking at a strategic national approach to rail.

Senator KIM CARR: How would you see the relationship between the Commonwealth and the states in such an approach?

Dr Thomson : This is why we have advocated for a white paper. I think there needs to be, as you say, more input from organisations, not just us. I think there needs to be participation from the industry as a whole, and that needs to be fleshed out by a white paper approach.

Senator KIM CARR: Can you explain to us: why do you think a white paper is needed? What is the benefit of that—presumably a green paper and a white paper process? Is that what you mean?

Dr Thomson : Yes.

Senator KIM CARR: What is the benefit of that? How do you see that working?

Dr Thomson : You have stated yourself you need the input from the industry and the peak body members, and I think that should be done through a consultative process.

Senator KIM CARR: How long do you reckon that would take to organise?

Dr Thomson : That is dependent, I guess, on the people running the process and the feedback that you get.

Senator KIM CARR: Could it be done reasonably quickly?

Dr Thomson : I would suspect so, yes.

Senator KIM CARR: Obviously, acting on a recommendation of this committee could move it along. I want to ask about harmonisation, finally. I know my colleagues want to ask some questions. How do you think we could organise the harmonisation around standards so that we can actually allow that supply chain capacity to be developed?

Dr Thomson : Again, that is outside the remit of RMCRC. But COAG would be a good place to start that conversation, to bring that to the table. Obviously, it takes the cooperation of the states. Unlike defence, which is run at a national level, we do have a state-Commonwealth divide and the issues that are associated with that. Rail is not the only one that has this issue. It needs to be addressed, and there needs to be a pathway brought forward.

Senator KIM CARR: I should correct the record. The ARA did make a submission. It was the manufacturers who did not want to front. We had better clear that up in the Hansard; otherwise who knows when we will be able to do it? I think the principle I was making is still valid—that people are anxious about making public comment on matters of policy like this. Finally, on this issue of an innovation dividend, how do you see that working?

Dr Thomson : Given that government, both state and federal, invest in major infrastructure projects, tying some of that—and this has been a discussion I have had with various people both within the industry and within the operators—obviously, with such an investment, there should be, and there is, an opportunity for government to look for an innovation dividend in light of the fact that they can start to look at setting up centres of excellence or hubs of expertise.

Senator KIM CARR: So would you see that as part of the tender process?

Dr Thomson : That would be worth looking at, yes. For example, in New South Wales, I think that, when Knorr-Bremse received a funding grant, part of that funding grant was to set up a centre of excellence research facility, which was done. I think any way we can promote industry and give industry confidence that there is the capacity to invest in innovation—that government is co-funding that or sees benefit in that—is a good thing.

CHAIR: Before I go to Senator Rice, Dr Thomson, we did go to New South Wales. We went up to Newcastle. It is amazing that the work—and I will lead into this when I get to my turn—was there in New South Wales. It just was not going to Australian companies or Australian employees.

Senator RICE: That is where I was going to go to as well. I can see that you can make improvements with innovation, and you can put all of our technological expertise and improvements in materials. I can see that you can begin the hard yards of getting harmonisation so you have one market. But my fundamental question is: currently, is the Australian market big enough for a viable rail manufacturing industry? I suppose there are two parts to that. One is on the existing rollout of rail upgrades or expanding rail services. What proportion of that would need to be Australian rather than just importing rolling stock, for example, to really—

CHAIR: Can I answer that? I will say 100 per cent.

Senator RICE: I am interested to know the CRC perspective on how big the market is and how strong a base it can be. I would love for it to be a really viable part of our manufacturing industry, but do we actually need to have a significant upswing in the number of rail projects being rolled out in order for that to be the case?

Dr Thomson : There are, and I give the numbers in the paper, which I cannot quote off the top of my head, so I apologise for that. But they are there, and, yes, there is obviously a viable industry within Australia. I think there is a decision to be made as to how much of that should be done locally. Is there a requirement not just through a manufacturing stage but also in the form of national interest to maintain some of these capabilities that extends beyond rail manufacturing itself?

Senator KIM CARR: In over a decade and a half, we are talking $46 billion of public money.

Dr Thomson : The way that government seeks to establish that is outside my jurisdiction or my comment. Essentially, there is a viable industry within Australia. I think the white paper could explore how industry can participate in that and how much of that can be done offshore and how much of the higher value manufacturing can be done onshore. Really, it is about setting the scene. But clearly there are two paths here. One is—and we state this in the paper—that the status quo will not result in a viable industry. Some of this is around not only government initiatives but also industry themselves taking on more advanced manufacturing techniques, moving to automation and adopting some of these technologies that will benefit the industry as a whole in years to come.

Senator RICE: What do you think is going to be necessary to overcome the peaks and troughs that have plagued the industry so far?

Dr Thomson : A national approach to rail, the ability to set centres of excellence, the ability to determine manufacturing sites and, really, to create the best efficiencies within the systems will be key. But, again, those are issues for government and industry to determine. I think that the tender process goes a long way, particularly around local content—where that content is derived from and what local content means—whether it is state or nationally based.

Senator RICE: Basically, what I hear you saying is that there is a bright future, but it is not going to happen just by business as usual as it has been experienced in recent times, that there needs to be a stronger role for government in shaping and maximising the potential. Would that be accurate?

Dr Thomson : With rail, like defence, the objectives and policies are set by government and most of the procurement is government based, at least in passenger rail, so there is a huge role for government to play.

CHAIR: Dr Thomson, to the best of your knowledge, has this conversation—and I started off with the drop-dead, no-brainer line that it just makes so much sense—been a COAG conversation?

Dr Thomson : I believe there have been some discussions.

CHAIR: Would it be unfair of me to ask what has come out of them?

Dr Thomson : I am not privy to that.

CHAIR: Okay. As Senator Carr said in this committee, we took evidence in Queensland that there would be $47 billion in the next 12 to 13 years, was it?

Senator KIM CARR: Yes, it was a decade and a half, I think.

CHAIR: With the great support of Senator Back and the whole committee, if we can spend $80 billion on submarine building in Adelaide and we get a couple of bob coming over to Western Australia, I cannot believe that we are not sitting down as a nation and saying, 'How do we make this happen?' How the hell do we not start thinking about Australian apprentices, Australian businesses, Australian employees, where the taxes are paid here in Australia? It just does my head in—and not only that, but to give our kids an opportunity to share in what I call the 'common wealth', but it is not too common at the moment. It is going one way, and it is heading overseas. I see it going.

Dr Thomson : Within that there is a capacity to how we even approach that. There is a short-term methodology that we have short-term employment for a period of time. I think what the white paper can flesh out is the long-term viability of the industry and how Australian industry can set themselves up for a 30- to 50-year future.

CHAIR: We have been doing it successfully for 100 years—well, not a 100; it is probably more, isn't it?

Senator RICE: It is more than 100.

CHAIR: For more than 100 years, and everything was going along swimmingly. This is the infuriating thing for us: it is not as though the requirement for rail freight passenger service is diminishing. Crikey, it is increasing. We are in Canberra where there is a blue going on about $1 billion of taxpayers' money for a rail line—and I am not getting into that blue, I am just saying it is on—yet we are not sitting there thinking, 'If that's the case, then how do we make Australia gain from this?' Where are we with the white paper? Where are we at?

Dr Thomson : I think that is a question for the committee.

Senator RICE: Yes, a recommendation of our committee, I think.

CHAIR: I just want to know if you know something that we do not know. By the way, Dr Thomson, have you met Mr Thompson? It sounds like a Chevy Chase movie! Senator Back, are there any further questions you wish to ask?

Senator BACK: There was that question about positioning yourself in terms of the prospect of this 40-year perspective that the committee is trying to work itself towards. Do you see that there is a role for your CRC in that, or do you see that it would be something that should be picked up in the white paper process and driven by this rail industry adviser?

Dr Thomson : I think there is always an ongoing need for innovation and mechanisms, particularly to promote industry and the publicly funded research institutions to work together. I think the latest figures were that we rank at the tail end of the OECD nations in terms of that interaction. The other noticeable figure is that, within the rail industry itself, less than one per cent of the employees have postgraduate degrees. Part of this is upskilling industry to be able to recognise the opportunities in the future.

Senator BACK: We had evidence in Newcastle from a company that makes suspension systems and springs, and this joker said to us that if you jumped on the train in Beijing and ended up in Tibet, you would be travelling on his suspension systems. He then went on to tell us what work they have done for the metropolitan rail system in Sydney. It seemed to me that that was highly innovative—it met all the jargon and words we hear being used, as Senator Carr pointed out. It seems to me that that messages is not getting out to the wider Australian community. I reckon that if you canvassed most of the mob down there in Little Collins Street at the moment they probably would not have an appreciation of Australian innovation in the rail and tramway system. Is that a fair comment? Is the industry doing enough to tell Australians what they are doing in the innovation space that is actually being exported—a la the bloke with these springs?

Dr Thomson : I was talking to an industry representative—not within our consortia—who said that 20 years ago it was very different: engineers wanted to leave university and join the rail industry. Over the past 20 years there has probably been a decline. Through the centre we are actually starting to see kids wanting to come out of university and participate in rail. So I think that is on the incline. Part of that is around the boom-bust cycle we have seen over the last 20 years, in terms of investment. The key is to create a pipeline where companies are willing to invest in people, willing to invest in capital and to invest in innovation. I think that will go a long way to supporting what we are doing in the CRC.

CHAIR: Thank you for your time today. We appreciate your coming here and sharing your wisdom with us. Good luck with that wherever life takes you and good luck to the CRC.