There are some simple things officialdom can do to attract Australian investors back into domestic infrastructure projects. MICHAEL BAILEY reports.
Australian investors are becoming less likely to back domestic infrastructure projects, according to the global head of infrastructure at AMP Capital Investors, Phil Garling, and not just for reasons related to the asset class itself. “Our clients are increasingly saying they want global mandates, because they’re simply seeing better opportunities offshore,” Garling says. Indeed, if the infrastructure veteran were getting set in such a mandate today, he says only 20 per cent would be directed to these shores, with 20 per cent invested in the Americas and 40 per cent in Europe. “In Europe you’ve got governments with big budget deficits who really have an incentive to make projects attractive for private sector investment,” he says, pointing out that the 150-year old “leaky pipes” of the Thames Water enterprise are currently being replaced, almost entirely by Australian pension fund money (including that of Garling’s funds).
“The need for the replacement capital expenditure is recognised, as well as growth capex, and is reflected when you go to the water regulator every five years to negotiate a new price.” Garling says this attitude can compare favourably to the approach of Australian governments, which, when it comes to infrastructure projects, usually means governments at the state level. Everybody knows the disastrous outcome for investors from such ventures as Brisconnections and Sydney’s Cross City Tunnel, where the NSW Government infamously refused to close streets as it had contractually agreed. Another beef for would-be Australian infrastructure investors is bid costs, according to Garling. “It can cost $20 million or $30 million to bid for some of these projects, and an institutional investor isn’t going to wear being one of five taken through the process.”
Garling’s suggestion for neutralising bid costs as a problem is for a maximum of two bidders to be taken through the full tender process, and also to take a leaf from the Federal Government following its recent tendering process to build a new defence headquarters in Canberra. “In that case the Government refunded some of the bid costs of the runner-up tenderer,” he says. “That’s an exception rather than the rule as it stands, but making it the rule would go a long way to attracting more investors to look at these projects and probably improve the overall quality of the bids.” Garling also encourages the consideration of different models of infrastructure investment. He urges governments to be brave and educate the public on the benefits of private sector ownership.
