Asset privatisation remains challenging
Asset privatisations are one of the major pillars of government strategy.
This year’s federal budget continues the government’s strategy of direct and indirect stimulation of infrastructure investment, first outlined in the 2014 Budget. The emphasis continues to be on economic infrastructure, mainly transport, but has shifted towards regional rather than urban development with the announcement of several new measures including a $0.5 billion commitment to new investments in road projects in WA and a $5 billion concessional loan facility designed to increase private sector infrastructure development in Northern Australia.
Asset privatisations remain one of the major pillars of the government’s infrastructure strategy, but continue to be challenging for state governments. The cancellation of the Queensland asset leasing program means almost half the potential Australian infrastructure investment opportunities for the private sector are off the table, leaving a hole in the government’s original forward estimates of overall federal and state infrastructure funding which the budget does not address. In addition the leases of the NSW poles and wires businesses and the Port of Melbourne are yet to face potentially difficult passages through their respective state upper houses.
Direct grants, under which the federal government makes available funding to support state infrastructure projects, have been more effective to date with three out of the four major identified major projects having made substantive progress, while the government has re-affirmed its commitment to support infrastructure development around the development of Badgery’s Creek Airport. However, Victoria has elected to not proceed with the East West Link, which puts at risk the $1.5 billion federal grant earmarked for that project, although the federal government has noted it may consider reallocating these funds to other projects of national significance in Victoria.
From a private investor’s perspective, the Victorian state government’s repudiation of the East West Link project and uncertainty around upcoming privatisations has the potential to impact private capital appetite for investment in Australian infrastructure. The federal government’s commitment to increase consultation with the private sector in the development of improved partnering models is welcome. The challenge will be to rebuild momentum against a backdrop of cancelled privatisations and projects.
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