When commentators talk about a “wave” it’s normally a sure sign that something big is happening. In Australia the so-called “privatisation wave”, which is already swelling nicely, is expected to eventually bring A$100 billion worth of assets crashing on to the shore.
For many infrastructure buyers, Australia is undoubtedly the place to be. This has been reflected by heavily populated auction processes for those assets which have already come up for grabs, with the likes of Botany/Kembla and Newcastle ports, as well as Queensland Motorways, all being sold for billions of dollars at punchy multiples.
What’s more, investors needn’t worry that deal flow is about to dry up any time soon. As well as a mooted A$6 billion sale of Port of Melbourne – expected to be the biggest of Australia’s port privatisations so far – there’s also the small matter of the $A30 billion sale of New South Wales’ “poles and wires” electricity assets. The latter is politically sensitive due to public opposition, but if such a deal can be done anywhere it’s almost certainly Australia.
The fact that the pipeline is bulging is testament to one extremely important facet of a thriving infrastructure market – political will. While there was already momentum under the previous administration, Tony Abbott added fuel when he described himself as the “Infrastructure Prime Minister” after coming to power last year. Infrastructure, it was clear, was priority number one for the new government.
For political reasons, this was an astute move. At a time when the mining boom was beginning to run out of steam, infrastructure was identified as a more than adequate substitute to bring off the bench in the hopes of keeping Australia’s impressive economic performance going and creating plenty of new jobs.
But while talking the talk is all well and good, how about walking the walk? When it comes to practical measures, the Australian government has delivered changes to better enable states to offload assets (a process that certain states are highly motivated to carry out in order to replenish their dwindling coffers). One example came in the area of tax innovation, with states allowed to retain certain taxes paid by state enterprises after they have been sold.
By identifying infrastructure assets to sell as well as identifying a current infrastructure investment gap, Australia has created a virtuous circle whereby the proceeds from privatisation sales are often reinvested in the much-needed building of new assets. A happy side effect of this is that it goes a long way towards removing privatisation’s toxic associations – rather than private investors fleecing the public and running for the hills, they are seen to be giving something back by improving local communities.
Of course, as mentioned in our Australian roundtable in this issue (see p.xx), the Australian infrastructure market is not all about privatisations. The public-private partnership (PPP) space meets with the same complaints as elsewhere about the lack of a decent deal flow. Nonetheless, there has been a sharp focus on innovation around the structuring of PPPs which should help to ensure that investor interest will continue to grow. There is also a healthy prospective pipeline of deals involving one fund manager selling to another.
But it’s the rocket boost that has been given to privatisations that is the biggest contributory factor in making Australia the globe’s hottest infrastructure market in 2014.