Australia launches new asset recycling program
As part of the Infrastructure Growth Package in its 2014–2015 Budget, the Australian government has set aside A$5 billion ($4.65 billion) for an Asset Recycling Initiative, a five-year program to provide incentive payments to states and territories that sell infrastructure assets and reinvest the proceeds into further infrastructure development.
The program should not only leverage an estimated $40 billion of new infrastructure investment in Australia, but ease public apprehension and political barriers surrounding the privatization of Australian infrastructure.
“Asset privatizations will always be challenging for politicians,” says Chris McArthur, head of asset management, Australia, with Colonial First State Global Asset Management. “However, asset recycling helps allay public fears that they are somehow ‘paying twice’ for the same asset.”
This was seen in last year’s A$5.07 billion ($4.72 billion) sale of Port Kemba and Port Botany in New South Wales, where there is a sense among industry participants that the deal received noticeably stronger public support once it was announced that a large share of the proceeds would be recycled into future infrastructure projects.
The new program will pay states and territories 15 percent of the price of an asset if 100 percent of sale proceeds are reinvested in infrastructure and ground is broken on the new infrastructure before June 30, 2019.