Australia needs fresh infrastructure investment, primarily to address its strong population growth that is concentrated in a few major cities, according to a leading rating agency.
In a recent report for its clients, rating agency Moody’s notes the country's infrastructure development will fall into one of four broad categories.
"Firstly, greenfield infrastructure developed by governments, secondly, the privatistion of certain state-owned assets as their development risk abates and governments seek to recycle capital, thirdly, the governments' use of public private partnerships (PPPs) for selected assets, and lastly, initiatives led by the private sector," says Simon Poidevin, an Analyst at Moody’s.
Australian state governments' strategic plans focus on meeting demand for education, health and transport services, particularly in the country's eastern state capitals where population growth is concentrated.
Moody’s expects that the governments will continue to fund most infrastructure projects, but they will partner the private sector when possible, given the size of the funding requirement, and the governments' focus on reducing budget deficits and optimizing their use of capital.
“State governments will fund and develop Greenfield projects and could look to privatise these developments after ramp-up risk has abated.
“In particular, the governments will take on projects with long development lead times and high ramp-up risk, because it is unclear whether the projects' standalone revenue will be sufficient to attract private sector capital. But, the governments will likely seek to privatise certain projects over time through asset recycling initiatives to fund additional infrastructure investments.”.
And, governments will use PPPs when they offer greater efficiencies and the optimisation of capital, and meet the state PPP guidelines. Many of these partnerships will be executed on an availability-payment basis, with the governments retaining volume risk.
Moody's also says that the private sector will continue to look for opportunities to undertake infrastructure projects.
Specifically, large rated infrastructure companies operating across a range of sectors will continue to invest in asset expansions or new assets to meet the growing demand for the services that these assets provide. “Their investment decisions will be driven by the perceived stability of the policy environment,” the agency opines.
At the same time, regulators will work to ensure that consumers are adequately protected when companies with strong market positions make further investments in key assets, Moody’s concludes.
