Australia fast-tracks A$20bn infrastructure fund

Private equity investors looking to finance infrastructure projects in Australia may soon have a new competitor after the Australian government agreed to accelerate the creation of its Building Australia Fund.

The Australian government will accelerate the creation of its Building Australia Fund, an A$20 billion ($15 billion; €12 billion) national fund dedicated to financing infrastructure projects across the country. The fund already has A$14 billion in committed financing.

The Australian treasury announced plans for the fund in May, but a list of priority projects and guidelines for how the money will be spent wasn't due until March 2009. Last week, the Council of Australian Governments, an inter-government advisory group, and the Australian Commonwealth agreed to have the priority list created by the end of the month.

Burnley Tunnel, Melbourne

With legislation to officially create the fund due to be introduced in the Australian Parliament in the next two weeks, officials hope that projects could begin to get financed as early as January 2009, or much sooner than under the original deadlines for moving the project forward.

“It's a recognition that public investment in the nation's infrastructure has been sliding over the last couple of decades,” said Jeff Singleton, spokesperson for Anthony Albanese, the Australian Minister for infrastructure, transport, regional development and local government.

According to Singleton, Building Australia “will fund anything from a A$10 million road that better connects a road to a port right up to a multi-billion dollar rail network.”

Australian states have already started jockeying for their share of the A$20 billion, with more populous states like Victoria arguing for up to a quarter of the fund. But Singleton says that projects will be funded based on their merit and whether they contribute to productivity, not on population metrics. The upcoming audit of the nation's infrastructure and resulting priority list will crystallise these guidelines, he says.

Though the Australian federal government plans to spend A$76 billion on infrastructure over the next five years, Singleton believes that the idea that the increased spending will crowd out private investors is “a dubious economic argument to make.” Some projects are inevitably better funded by the government, others by the private sector and the use of public private partnerships is optimal for the remainder, he said.

The money for the fund is being committed from Australia's budget surplus for the 2008-2009 financial year, which, at A$21.7 billion, represents about 2 percent of the nation's GDP. Besides the Building Australia Fund, other so-called “nation building” funds being seeded from the surplus include an Educational Investment Fund and a Health and Hospitals Fund.

All three grew out of a promise made by the Australian Labor Party prior to last year's elections, during it gained control of the Prime Ministership for the first time in 11 years.