11_IT_Nov_2010Australia’s infrastructure needs are vast, and private investors are negotiating new ways of developing these nation-building assets with governments. Risk is being redistributed, and the sustainability of the current bidding process for greenfield projects is under interrogation. Investment Magazine uncovers the profit and policy interests underpinning new Australian infrastructure.

There are many voices – from Canberra, consulting firms and the infrastructure lobby – calling for superannuation fund capital to be harnessed for Australia’s imminent infrastructure needs. Listen closely, and you will infer that funds are choosing not to buy into an array of ‘nationbuilding’ projects put forward by governments. But this is dead wrong. SIMON MUMME reports.

Today, Industry Funds Management (IFM) invests billions in infrastructure assets worldwide. It originated in 1990 as the Development Australia Fund: an investment vehicle enabling super funds to collectively allocate capital to domestic infrastructure. Its creation was spurred on by “the political debate and hand-wringing about why superannuation money wasn’t being invested in infrastructure” at the time, says Garry Weaven, chairman at IFM. “I thought we’d better launch a vehicle to invest in infrastructure because there was talk that super funds should be forced to do it.

Now we’re here again, and it’s the funds that are asking: ‘Where are the deals?’ ” In the last bull market, cheap debt made it easier for the private sector to underwrite greenfield infrastructure in Australia. But since credit markets froze in 2008, there has been pressure on the superannuation sector to step in and underwrite construction of ‘nation-building’ infrastructure: the imminent transport, energy, social and economic infrastructure needs usually developed as public-private partnerships (PPPs). In its report, The Role of Superannuation Funds in Building Australia’s Future, the peak lobby group for the infrastructure sector, Infrastructure Partnerships Australia (IPA), estimates that if super funds’ current average rate of infrastructure investment continues, they will invest $60 billion in the sector by 2020 – about 7.5 per cent of the $700 billion funding shortfall in the next decade.

IPA’s report – and another written by Ernst & Young, entitled The trillion dollar question – creates the impression that a stack of infrastructure projects is on the table, and that super funds, awash with capital, are to the detriment of Australia not investing in national infrastructure at their full capacity. But in truth, every PPP that has come to market seeking private capital has been funded, and there is no backlog of deals visible to funds. Governments have not provided a detailed vision of the future infrastructure of Australia. “There is some degree of unreality in the debate,” Weaven says. “There is a theoretical problem of there being a lot of projects to be done, and how super funds can divert money to them. But in reality, there hasn’t been a problem: there haven’t been many projects coming to the private sector. And where there have been projects, seeking debt and equity, they’ve been funded.”

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