Region on road to infrastructure boom

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The Australian: Region on road to infrastructure boom. Annabel Hepworth, National Business Correspondent, 10 September 2014

Growing urbanisation over the next decade will propel infrastructure spending in the Asia-­Pacific region to more than $US5 trillion ($5.39 trillion) a year, says a new report that also urges Australian governments to allocate risk on roads projects to lure investors.

The report by PwC to be ­released today, and obtained by The Australian, forecasts that ­demand for roads and power projects in the region will spur growth in the market of 7 to 8 per cent a year, hitting $US5.36 trillion a year by 2025.

Ahead of the release of the ­report, PwC Australia’s managing partner, deals, Sean Gregory, said yesterday there was opportunity for Australian business in tapping the growth in Asia’s ­infrastructure spending.

“The Australian aspect I think will definitely revolve around our project expertise, experience with what works and doesn’t work, what’s the best of our policy ­settings,’’ he said. “All those things are likely to be much more important in Asia than our capital. Our capital is not going to be a ­really significant part … of its own.”

The new analysis points to the high-profile problems that have plagued Australia’s roads projects, including Sydney’s Lane Cove Tunnel and Brisbane’s $4.8 billion Airportlink, where investors ­suffered losses when traffic ­numbers were below forecasts. To that end, the report says government will need to use mechanisms such as “availability payments”, which is where the state initially retains tolling and traffic risk on a public-­private partnership until the ­revenues for the road are well ­established.

The “availability payments” model is being used on the first stage of Victoria’s East West Link.

Yesterday, the Lend Lease-led East West Connect consortium was announced as the preferred bidder to build the eastern section of the project, which was ­developed after a landmark 2008 study by Rod Eddington into Melbourne’s travel needs.

The report comes as lifting private investment, especially in infrastructure, is expected to be a key theme at the Group of 20 leaders meeting in November, with the Abbott government having identified infrastructure as a priority area for Australia’s G20 presidency this year.

Business leaders, including EnergyAustralia boss Catherine Tanna and Macquarie Group’s Nicholas Moore, are expected to attend an infrastructure roundtable discussion at the G20 ­finance ministers meeting in Cairns this month; this follows a roundtable in Feb­ruary at the Sydney meeting of finance ministers and central bank chiefs.

The Coalition has wanted to draw more private investors into new construction, with the government arguing its asset recycling initiative to use money from public asset sales to ­encourage state projects, will ­unlock private-sector funding.

The new PwC report, titled Developing Infrastructure in Asia Pacific: Outlook, Challenges and Solutions, finds both mature and emerging economies face budget constraints, meaning there is a “great need” to tap private-sector capital.

Mr Gregory cited the East West Link as a project that was structured to deliver “equitable” risk allocation.

He also pointed to Sydney’s WestConnex, which the NSW government has billed as using an innovative financing model where the government funds initial motorway sections then when traffic risk is at a level palatable to private investors, it sells down to the private sector with the proceeds re-invested in extra stages or new projects.

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