The increase in funding for Infrastructure Australia and expansion of its role, announced in the Australian federal budget May 10, has been welcomed by the institutional investment industry.
The A$36 million (US$38.04 million) allocated to IA over the next four years should allow the panel to review national infrastructure priorities, assess projects and provide advice on infrastructure financing and reforms that promote productive investment in Australian infrastructure, according to the budget. (Infrastructure Australia is a statutory entity, launched April 9, 2009, that advises governments, investors and asset owners on a wide range of infrastructure issues.)
It was made clear that IA will work with state governments and the private sector to develop a deeper pipeline of priority infrastructure projects valued at more than A$100 million.
The Association of Superannuation Funds of Australia welcomed the funding, saying the government's budget recognized the role that private investment played in developing infrastructure that was in the national interest.
“There has been a lot said about the potential of super funds to finance infrastructure, and we have been speaking with IA and Infrastructure Partnerships (Australia) for a while on this,” said ASFA CEO Pauline Vamos.
Ms. Vamos said the key concern for ASFA was development-stage funding — where superannuation funds were often sought as equity investors — and the use of tax incentives to make these deals more appealing.
“The tax incentives to really encourage funds to invest in greenfield (deals) are there,” she said. Greenfield deals refer to development projects in which future cash flows are less certain.
“They're putting a lot more robustness around IA, so what that means is that a pipeline will be developed. The scrutiny of what is in the pipeline, the governance around it and the ownership of it will be part of the new governance arrangements that IA has been asked to put in place. So that means (there is) a bit of a safety net for superannuation funds.”
AIST CEO Fiona Reynolds, CEO of the Australian Institute of Superannuation Trustees, said these measures to increase infrastructure investment opportunities will provide encouragement for super funds to invest in greenfield deals.
"Super funds have traditionally been heavily involved in infrastructure investment to maintain diverse asset allocations. These measures will provide encouragement for super funds to continue to invest in the nation's infrastructure," said Ms. Reynolds.
The budget's infrastructure initiatives would help make infrastructure a more attractive investment for superannuation funds and fund managers, said John Brogden, CEO of the Financial Services Council.
“The tax changes will undoubtedly make projects on IA's national priority list more favorable to investors,” he said.
“The amendments to the change of ownership tests remove a tax anomaly and recognize that infrastructure projects are long-term investments.”
Infrastructure investment specialist Hastings Fund Management endorsed the proposed change as they would see “IA adopting a more proactive role in determining the nation's infrastructure priorities,” said executive director of unlisted infrastructure at the manager, Richard Hoskins.
“An extensive pipeline of projects will provide greater certainty to private sector investors and superannuation funds,” he said.
However, Mr. Hoskins said there was substantial work ahead in order for the government to increase the level of private sector and superannuation investment in Australian infrastructure.
“IA, with its new mandate and increased autonomy, in partnership with key participants in the infrastructure industry, must promptly and forcefully pursue a national reform agenda that genuinely focuses on removing roadblocks to improved project efficiency, delivery and cost.”
Damian Hill, REST Industry Super CEO, said the funding was a good step.
“Superannuation funds have been calling for greater certainty around the project pipeline and I think we will start to get that with a national construction schedule,” he said.
“We've also been talking about recognition from all levels of government about the need to examine the risk-sharing. There are a lot of greenfield investments that need to be made in Australia, and superannuation funds only have a limited appetite for greenfield investment, so how the governments use their relative balance sheets to make both greenfield and existing infrastructure available for private investments will be critical.”
Miranda Ward writes for I&T News, Sydney, Australia.
