As oxymora go, “social privatisation” is a pretty good one. It’s not the best – that title should perhaps go to “Great Depression” or “friendly fire,” pairs of words which definitely shouldn’t go together. But it’s certainly up there on the “odd couples” list.
That infrastructure is responsible for giving birth to an awkward moniker is not surprising; that it actually seems to be gaining traction in Australia is, however.
In case you’ve been distracted, social privatisation was the strapline under which Australia’s New South Wales (NSW) government sold off a 99-year lease to ports Botany and Kembla for a whopping A$5.07 billion (€4.08 billion; $5.3 billion).
The buyer – a consortium led by Industry Funds Management (IFM) – included a strong national and local component that made it friendlier than your average private equity asset stripper. Effectively, the two ports will be more than 80 percent-owned by Australian superannuation funds and will directly benefit the savings of some five million Australians, including 1.5 million in NSW.
It’s a powerful argument. These assets will not be owned by faceless, greedy fat-cats hell bent on making a profit: they will be owned by the people paying for your retirement and, somewhat indirectly, by the retirees themselves.
In and of itself, that would already be a great detoxifier, but there’s more to the social privatisation argument than that. The other, equally powerful, half of it is that the money being netted from those privatisations is going to be used almost exclusively to build new infrastructure across NSW.
In short, proceeds will not disappear into the public sector ether – they will be used to build new roads and hospitals that will serve the state’s population for generations to come.
“This virtuous cycle of selling assets and refreshing the capital back into new, major infrastructure – I think everybody gets it and can see the point in doing that,” Michael Hanna, IFM’s head of Australian infrastructure, told Infrastructure Investor during a recent roundtable in Sydney.
So far, Hanna seems to be right. The public reaction to the NSW ports deal has been largely positive, with several pundits in Australian newspapers praising the approach. That should encourage other states to follow suit and, perhaps, other governments across the world.
For the institutional investors that are the likely buyers of many of these assets, this also presents a golden opportunity to re-write the rules of infrastructure procurement to suit their long-term needs. I mean, what better time to catch a politician’s ear than when you are handing him a big, fat $5 billion cheque?
The impact of such a shift could be nothing less than tectonic, given the amount of institutional capital wanting to access infrastructure and the amount of new infrastructure that needs to be built. That much of this lobbying is already going on in Australia once again makes it the Antipodean ground zero of infrastructure innovation.
*To read more about what’s happening in infrastructure Down Under, be sure to read our Australian roundtable, published in the July/August 2013 issue ofInfrastructure Investor.