THE FEDERAL Government is committing $20 billion to rail investment across the country, as announced in the 2017 Federal Budget.

In a joint statement, Prime Minister Malcolm Turnbull and Deputy Prime Minister Barnaby said the investment aimed to “cut congestion in cities, grow the regions and create thousands of new jobs”.

The largest part of the investment is $10 billion for a National Rail Program for urban and regional passenger rail projects that “reduce travel times, connect people to jobs and opportunity and provide families and businesses with affordable options on where to live and invest” according to Mr Turnbull.  

There is an additional $8.4 billion to build the Melbourne to Brisbane Inland Rail, Australia’s biggest rail project in 100 years.

“That will build a dedicated high productivity rail freight corridor also saving lives by getting freight off roads and onto rail,” Mr Turnbull said.

Other commitments to rail in the 2017–18 Budget include $500 million to upgrade regional rail networks in Victoria; $792 million for Perth Metronet; $30 million towards development of a business case for the Melbourne Airport Rail Link; $20.2 million for Murray Basin Rail building on a previous commitment; and $20 million to progress business cases for faster rail connections between major cities and their surrounding regional centres.

NATIONAL RAIL PROGRAM

The Federal Government’s $10 billion National Rail Program is designed to progress the its Smart Cities agenda.

Mr Turnbull said urban rail projects “have the capacity to be city-shaping by providing opportunities for urban regeneration, unlocking land for affordable housing, and promoting better integration between land use and transport planning”.

“Our investment in passenger rail will benefit hundreds of thousands of commuters each day through cutting congestion and travel times while improving access to jobs, education and vital services.”

The Prime Minister said there were several once-in–a-generation, city-shaping rail projects around the country at different stages of development.

“These transformational rail projects have long planning and construction lead times, with high capital costs,” he said. The program would build on the current work the government is doing in partnership with state governments to develop urban rail plans for our five largest cities and their surrounding regions.

Mr Turnbull said the government’s record $10 billion investment in rail was in addition to $792 million for Perth Metronet and $30 million for the development of a business case for the Melbourne Airport Rail Link, a project that is expected to enhance Melbourne's urban rail network and role as international gateway.

The transport corridor between Melbourne's CBD and Melbourne Airport has been identified by Infrastructure Australia as one of the most heavily congested in Melbourne, reducing the amenity, liveability and commuter experience of the surrounding suburbs. 

CONNECTING REGIONS

The Prime Minister said the government’s National Rail Program provided regional Australia with a fair share of the $10 billion commitment “to deliver faster, more reliable rail connections both between regional cities and our capitals, and within regions themselves”.

“Better rail services have the potential to completely transform our regional communities, allowing easier access to jobs, health services and affordable housing,” Mr Turnbull said.

“The government's initial focus will be regional rail in Victoria, with an additional $500 million in the 2017–18 Budget to build a better regional rail network with improvements to the North-East Line, the Gippsland Line, and the Geelong Line, as well as undertaking a study into improving the Shepparton Line.

Mr Turnbull said faster rail connections provided a means to rejuvenate regional centres “while mitigating population growth pressures in our major cities including congestion, housing affordability, job accessibility and liveability”.

Under the 2017–18 Budget's Faster Rail initiative, the government has committed $20 million to support the development of up to three formal business cases for faster rail connections between major cities and regional centres.

The Federal Government will call for submissions from state governments and the private sector later this year.

“The business cases will then be considered for potential project funding in future years.”

DELIVERING INLAND RAIL

The Federal Government is to finance the Melbourne to Brisbane Inland Rail project by a combination of an additional $8.4 billion equity investment in the Australian Rail Track Corporation and a public private partnership for the most complex elements of the project.

Inland Rail will provide a high-capacity freight link between Melbourne and Brisbane through regional Australia to better connect products to domestic and international markets.

“The Inland Rail project will drive national productivity and reduce the number of trucks in our cities and on our regional roads,” Mr Turnbull said. “The project will sustain thousands of jobs, with up to 16,000 direct and indirect jobs to be supported at the peak of construction.”

The 126km section from Toowoomba to Kagaru, including large scale tunnelling, will be delivered through a Public Private Partnership. Under this delivery arrangement, the private sector will design, build, finance and maintain this section of the railway over a long-term concession period, the Prime Minister said.

“These funding arrangements will provide effective risk management and harness innovative design solutions for this nationally significant project, which is the biggest Commonwealth rail construction project since the transcontinental rail link across the Nullabor was finished 100 years ago.

“Inland Rail is a national project that provides an opportunity for the states and the Commonwealth to work together to drive the nation’s prosperity through regional development and strategic transport investment.

“Construction of this transformational project will start this year,” he said.

The Federal Government previously committed almost $900 million towards planning and land acquisition.

COMMITMENTS ONGOING

Mr Turnbull said Infrastructure Australia’s Infrastructure Priority List made a clear case for the need for further investment in public transport and freight rail across Australia.

“That is why the government is already partnering with State Governments early in the planning process to progress transformative rail projects,” he said.

In Queensland, the Federal Government has committed funding to progress planning for Cross River Rail. In New South Wales, the government is partnering with the Berejiklian Government “to investigate rail options for Western Sydney to connect the future Western Sydney Airport to population and job centres, and unlock affordable housing, and further investment in the region”.

“These commitments build on current Australian Government funding for significant rail projects, such as Gold Coast Light Rail in Queensland, the Forrestfield Airport Link in Perth, Flinders Link in Adelaide, Capital Metro in Canberra, and the Moorebank Intermodal Terminal in Sydney,” Mr Turnbull said.

www.infrastructure.gov.au

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BUILT ENVIRONMENT industry body – Consult Australia, representing 49,000 consulting firms – is calling on governments to overcome the financial obstacles that prevent infrastructure development. 

The Good, the Bad, and the Extremely Unhelpful report, published by Consult Australia, urges government to embrace debt, utilise value capture as a fair form of finance, recycle assets, develop road-user charging and develop policy to grow private sector investment.  

“Infrastructure is a tool that turns short-term debt into future surplus by increasing productivity,” Consult Australia CEO Megan Motto said. “With a triple-A credit rating and historically low bond rates there has never been a better time to invest in infrastructure, for this generation to take responsibility for the next by utilising low borrowing costs and investing in future economic growth.

“Our discussion paper seeks to showcase existing financing options, stimulate debate about future financing options, and above all, impress on leaders the opportunity of now.” 

Along with making better use of existing infrastructure assets through better urban planning or privatisation, the paper also suggests options for taxation reform, public finance, private finance and integrated funding frameworks. 

Consult Australia’s report calls for:

Taxation Reform including hypothecation; ensuring users contribute the full costs of their travel choices; environmental impact charges covering congestion or emission; demand-sensitive transport pricing; and rebalancing capital investment against recurrent expenditure.

Public Finance including Tax Incremental Financing to generate and use tax from increasing property values; Employer Transport Levies to fund the transportation of employees to work; Green Banking to grow contributions towards environmentally sensitive developments; and Infrastructure Bonds to provide access to large pools of retail investment funds like superannuation.

Private Finance including Direct Tolling of new infrastructure involving user-charging; Private-Public Partnerships, alliance contracting and rebalanced risk sharing; and Land Value Capture with the developer financing local improvements from the increased value.

Integrated Funding Framework to hypothecate new revenues to transport investment; Cost Recovery with transport users covering the costs that they impose; Road Pricing and Real Public Transport Fares to provide additional revenues to improve public transport services; Phasing Out Indirect Charges to reduce reliance on indirect taxes to improve funding transparency. 


www.consultaustralia.com.au

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FOR ALL the rhetoric in political circles about finding innovative new ways to finance and develop infrastructure, so far it seems no-one has heeded the call of Queensland-based IFO, an infrastructure financial trading platform.

In a recent blog on the Regional Economic Development (RED) Toolbox, which is also featured in the new Business Acumen Game Changers Special Report, IFO chief executive David Wallader asked region economic development authorities this most pertinent question, “What infrastructure would you develop if you already had access to the money? And what if this funding was not a loan to be repaid?” 

Mr Wallader is allowed to ask those questions because he is also capable of providing the answers through providing that funding.

Mr Wallader’s IFO company – the acronym stands for Infrastructure Financial Opportunity Pty Ltd – has managed to introduce a European-based financial trading platform, that only provides funding for major infrastructure and research, to Australia in 2016.

While the infrastructure trading platform is not new – it has been operating in Europe for 40 years under the orbit and regulations of the European Central Bank, the International Monetary Fund and the Federal Reserve, with the International Chamber of Commerce (ICC) in oversight – it is new to Australia.

That’s because the platform relies upon the provision of a bank guarantee secured by capital assets – usually from the entity constructing the project or the company engaging in the project, issued in their name, not transferrable or assignable to any third party (the trader) – and the starting point in Australia is now €100million (euros).

“The issuance of the guarantee is not a form of security as we know of it in the general banking requirement of today – it is a format of communication, confirming the recipient of the guarantee does have the assets in support and is worthy of the Trading Platform supporting the recipient to assist with the funding of the project,” Mr Wallader said. “It is not by way of a loan but by a joint venture funding arrangement only, to fund the project and for it to be debt free on completion.”

That is the good news, for prior to Mr Wallader arranging that minimum bank guarantee, the entry point had been US$500 million – and virtually no Australian commercial entity could raise a guarantee of that size. But many can raise today’s lower amount. The platform is ready to go in Australia and there is certainly no shortage of projects.

“There is so much opportunity to enhance particular regions throughout Australia with astute development of major infrastructure. The problem, as we all know, is funding that infrastructure,” Mr Wallader said. “I know we can change that. 

“Australia has traditionally relied upon State and Federal Governments to take the lead in this area, but I can see that Australia has an even greater opportunity to get major infrastructure happening through private-led investment.

“Region-changing projects such as rail (and fast rail), airports, ports, energy developments, tunnels, dams, major integrated agriculture projects, medical research … you name it … can happen faster, at lower cost, and with no impost on the taxpayer.

“That’s right – no project funding is needed from the government that ‘designs’ and facilitates this infrastructure, yet the government bodies that help create it still ‘own’ it,” Mr Wallader said.

LACK OF UNDERSTANDING

Mr Wallader has been disappointed by the lack of understanding in Australia about viable alternative funding for large-scale infrastructure development. He believes the onus can come off the public purse for many major projects, but he is having trouble getting Australian officialdom to comprehend what can be achieved.

“To my understanding, there are only two infrastructure trading platforms in the world today that organise this type of funding and I have lobbied hard for one of them – based in the United Kingdom – to modify its foundation funding levels so that Australia can access it,” Mr Wallader said.

“My company, Infrastructure Financial Opportunity Pty Ltd, is helping this platform to find suitable infrastructure projects around Australia.

“The system is simple and elegant, is closely audited by world financial compliance authorities … and the funding principle has been utilised for more than 60 years in Europe and for certain projects in Asia.”

Mr Wallader pointed out that large parts of Japan’s fast rail development had been funded in this way “because it gets economy-changing major infrastructure supported and built more effectively than any other financial system”. 

“Governments, including their statutory bodies, and private enterprises that back this infrastructure funding method, can more rapidly open up new economic growth areas, I believe,” he said. “I can see a day when several local governments would get together to develop, say, a rail loop that linked key agricultural production and tourism areas with a regional airport or port, and this loop could be augmented by solar panels to become an energy production system in its own right.

“It’s possible, with the right kind of regional leadership.”

DEBT FREE COMPLETION

Mr Wallader said a A$160 million bank guarantee against the assets of an enterprise could generate enough cash to support a project of more than $1 billion, providing sufficient monthly cashflow from day one.

He said funds were to be “held in the entity constructing the project or the company engaging in the project development, under their supervision – not  waiting on third party inspection of approval for progress drawdowns”.

At the end of the trading contract, the bank guarantee is handed back to the sponsor company “prior to the expiry date, without any prejudice or burden”.

“At the completion of the trading period contracted, usually just a few years, that infrastructure would be debt free and effectively owned by the government entities or private enterprise that commissioned the project,” Mr Wallader said.

“The reason the platform has been re-organised for Australia is that the European financiers see enormous prospects for our national infrastructure development and can see that a great many projects would get off the ground, given the right financial opportunity.

“I hope I will be able to play a role in bringing at least some of them to fruition through this highly innovative secure audited financial system.”

TRIED TO HELP ARRIUM

Mr Wallader has been making progress in plans to assist Northern Australia’s substantial infrastructure development proposals, and he has also tried to recover Arrium from voluntary administration and sale – but unfortunately to no avail.

His initial bid, to use a $500 million guarantee from Australia’s big four banks as secured creditors for the 94 companies of steelmaker Arrium – which went into voluntary administration in early 2016 – was turned down by the appointed administrator, due to the Deed of Company Arrangement (DOCA)  requirement and the discovery of an ‘out of the ordinary’ position of the ‘Big Four’ banks position of ranking as creditors.

That was even in spite of Mr Wallader’s plan to return 100 cents in the dollar to all creditors and return the company debt free to its shareholders. He was also planning to use the trading platform to fund research into Australian steelmaking, to help extend Arrium’s market advantage.

Mr Wallader said the trading platform’s management had accepted his proposal as a viable option because of the role Arrium was destined to play in the development of rail infrastructure and other major public projects.

He said he was disappointed by the disinterest of the banks in his proposal – which he presented to them on several occasions from September 2016 to May 2017 – until he discovered (and it was confirmed by the administrator in writing, 11 months after his initial approach) that the banks were not secured creditors of Arrium as he would have expected them to be, with a total of A$2billion combined exposure.

He had not factored such a peculiar possibility into his proposal calculations.

“That was a shock, I can tell you, to discover that,” Mr Wallader said. “I did not think such an oversight was possible in today’s banking environment in Australia.

“It’s a shame because I think we had the best outcome possible for Arrium and the Australian economy covered up until that point.”

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