Federal asset sales necessary to fund infrastructure

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Friday 23 August 2013 — The incoming Federal Government should consider asset sales as a means to fund important economic and social infrastructure projects, according to a new report released by EY.

Ensuring Australia’s economic sustainability – Government Agenda 2014, highlights the critical issues that needed to be on the incoming Government’s agenda, including key recommendations for infrastructure.

Medibank, Snowy Hydro and Air Services Australia are examples of Federal Government assets that could continue to be regulated but privately owned, with the capital raised recycled and invested in infrastructure, health and education initiatives.

EY Oceania Infrastructure Advisory Leader David Larocca says: “The national infrastructure debate is too focused on private sector financing. There is not a shortage of finance. The biggest impediment is getting the Federal and state project priorities aligned and funding committed”.

“Asset sales will always be emotive issues within the community and as such highly political, however the NSW Government is showing that when there is a clear link between the money being raised to invest directly in essential transport or social infrastructure, it is possible to get community support.”

The EY report outlines eight key issues that need to be addressed by the incoming Federal Government to make sure nationally important infrastructure projects go ahead, as follows.

Funding contributions to State projects
Federal Government funding is a powerful lever to encourage state projects but requires clarity and certainty on how much capital will be committed to avoid inertia.

National vision and Federal/state alignment
A national plan that Federal and state governments commit and stick to will bring greater discipline to national infrastructure planning. There needs to be greater alignment between the Federal and state governments on priority projects, their timing and proposed funding models.

Creating project pipeline certainty
Private sector appetite for infrastructure projects is enormously high – the issue is the lack of certainty and the complexity of the procurement pipeline. Governments need to avoid the extremes of risk and move toward a more consistent and transparent deal flow.

Funding and financing solutions
New models that allow the Government to take on enough risk to make a project attractive for private finance while remaining commercially attractive for Government is necessary. Federal and state governments are independently considering different options but a consistent, aligned approach is needed.

Attractive project structuring
In future we expect to see more user-pays models and new efforts to find other revenue streams that can be monetised by capturing the value created for property owners, developers and different levels of government.

Asset sales
Policy makers need to look at the balance sheet and identify businesses, for example, Medibank, Snowy Hydro, or Air Services Australia, that the Government could simply regulate, rather than own. The capital can then be recycled and invested in infrastructure, health and education initiatives that don’t have attractive economies for private providers but will deliver valuable economic and social outcomes over the long-term.

Approval processes
Approval paths should be streamlined, especially where there is a Federal / state disconnect, such as environmental impact mitigation.

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Contact details:

Megan Ball
Ernst & Young Australia
Tel: +61 2 8295 6427