Deals

S&P gives thumbs up to NSW’s infra strategy

The Australian state’s approach is a ‘best practice’ model of risk allocation and can be replicated globally, says the ratings agency.

-

New South Wales’s GDP growth is outperforming its peers and the world average thanks to its infrastructure strategy, according to a report by S&P Global Ratings.

The ratings agency said the models used in the strategy are favourable to investors looking to finance greenfield projects and address previous risk-allocation failures that led to defaults.

The strategy, launched in 2011, features a body formed to help plan infrastructure; prioritising greenfield projects over the next 20 years; and identifying models that can attract private sector investments.

Partial privatisation, asset recycling, unsolicited proposals and project bundling to attract private sector investments are also considered. All investment decisions are now based on final business cases and assessment of long-term implications on the state’s budget.

“These models are considered current best practice in risk allocation and have the potential to be replicated elsewhere to help fund infrastructure needs globally into the future,” said S&P. “Their full implications for credit quality and stability are yet to be seen, but our initial analysis shows a range of potential outcomes depending on the model used.”

NSW’s growth stands at an annual rate of 3.5 percent, compared with Australia’s overall rate of 2.8 percent and the G20’s 3 percent.

Parvathy Iyer, S&P Global senior director of infrastructure and one of the report’s authors, told Infrastructure Investor: “[Next year] will be a year of consolidation in Australia’s infrastructure market, particularly in the transport and energy sectors.”

Several critical infrastructure projects, such as the WestConnex toll road project with an estimated cost at A$16.8 billion ($12.7 billion; €10.7 billion), will move to a stage of development in 2018 that will allow private sector players to become involved.

Australia’s current power market conditions are also likely to accelerate discussions over what is needed to ensure a better-connected transmission network across states, including building inter-state connectors to ensure energy security.

In the medium-term, Iyer expects more privatisations from states like Western Australia and Queensland.