Govt infrastructure projects under threat: IPA

By Angela Dorizas

Infrastructure Partnerships Australia (IPA) has called on the Federal Government to invest in public-private partnerships to avoid a critical shortfall in debt financing for major works.

Lobbying on behalf of private and public sector stakeholders, IPA has released a research paper warning that without Commonwealth intervention the industry will risk loosing the “innovation, expertise and full engagement of the private sector in delivering better infrastructure”.

The inability of the private sector to co-invest in large scale infrastructure would also jeopardise the Federal Government’s plan to complete 20 major projects on Infrastructure Australia’s priority list.

IPA chairman Mark Birrell said in the wake of the global financial crisis rapid reform of infrastructure investment was required to secure future growth.

“The unprecedented contradiction of the global financial market is now directly threatening the delivery of vital infrastructure projects that Australia needs to boost productivity and living standards,” Birrell said.

“Consortia competing for large infrastructure projects are finding it increasingly difficult to raise finance from banks and submit fully underwritten bids.

“For the biggest PPP project, there’s simply insufficient capacity in the international debt market for even a single underwritten bid.”

The key recommendations of the research paper were that the Commonwealth should “temporarily lend, guarantee or provide capital contributions” to major projects over the next few years.

“It’s simply not in the nation’s interest to return to a limited, public works model with its inherent constraints for infrastructure development,” Birrell said, adding that it would not be a permanent change in public-private partnership (PPP) arrangements.

“Industry does not want or need the proposed PPP changes to be permanent. The key to any solution is to ensure that the PPP model reverts to a pure form, once the global economy recovers and debt markets restore their capacities.”

Nation-building plan at risk

This inability of the private sector to co-invest in large scale infrastructure would also jeopardise the Federal Government’s plan to complete 20 major projects on the Infrastructure Australia (IA) priority list.

IPA executive director Brendan Lyon told said it was safe to presume that there would be projects on the IA list that, under ordinary circumstances, would lend themselves to PPPs.

“It is also likely that those projects will be over $1 billion in capital value and capital cost and all projects above that level are under threat from the global credit crunch at this point,” Lyon told Government News.

“It is impossible to raise debt above about $600 million and that means that all mega projects are constrained by the availability of credit.”

Lyon said local and state government infrastructure projects would also be affected by the credit crunch.

“We’re already seeing it have an impact on infrastructure developments with the deferral of projects like the Northern Link motorway in Queensland, by Brisbane City Council,” he said.
“It is not the fault of local, state or federal government, but rather the domestic impacts of the global [financial] crisis.

“But it is and will continue over the short term to have an impact on partnership model procurement and other forms of infrastructure procurement that are funded by debt, until either the economy recovers or the Commonwealth takes action along the lines we’ve proposed in our research paper.”

He said federal and state government projects would be under more pressure than local government infrastructure, largely because smaller projects procured on a social infrastructure model were less likely to be affected by the financial crisis.

Infrastructure Minister Anthony Albanese welcomed the IPA’s contribution to what he called a “critical area of public policy”.

“Their proposals are worthy of consideration by the government as we continue to act to shield the Australian economy from the worst of the global recession,” Albanese told GovernmentNews.

“The government has consistently stated that building the infrastructure Australia needs will require a partnership between the public and private sectors.”

IPA recommendations

The IPA is calling on the Federal government to:

• act as a short-term co-lender to PPP projects of national significance to meet the gap created by the incapacities of debt markets;

• provide debt guarantees to nationally significant projects, allowing the private sector to raise debt and meet financing gap;

• provide direct grants for PPP projects; and

• take action to mitigate refinancing risks created from the deficiency of long tenor debt.

To access the full report, Financing Infrastructure in the Global Financial Crisis, visit the IPA website.

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