NSW Treasurer Mike Baird has elaborated on the pioneering financing strategy the O’Farrell Government is developing for the WestConnex motorway and foreshadowed its application to future key infrastructure projects.
“If you look at the market at the moment, the key risk is patronage risk,” Mr Baird said.
“Who’s going to take the tollway risk, and what’s the cost of that risk?
“Yes, the private sector will take it, but (with) the cost they’re going to apply to it, the economics don’t really make sense.
“Our idea is, why doesn’t the government put the money in first, build it in a competitive way and then, once the cash-flows start to be proven up, it turns effectively from a greenfield to a brownfield (asset).
“That project then starts to become very attractive.
“At that point, we’re looking to either look for additional equity or (at) raising debt that could be financed against those tollways.
“The additional money then goes into the next part of that project. You are recycling your capital as you go.
“It’s very likely that if this is successful, we would roll it out over other projects as well.”
Mr Baird was commenting in a wide-ranging interview with the Financial Services Institute of Australasia.
The NSW Treasurer will be the keynote speaker at Finsia’s Financial Services Conference next month.
Mr Baird also discussed the Government’s broader strategy for funding its $60 billion infrastructure program, which has included major transactions such as the long-term lease of Port Botany and Port Kembla.
“When we came into government, we had revenues falling and we had a debt profile that took us to the AAA credit rating,” he told Finsia.
“We have this huge infrastructure backlog, so what can we do? The only thing you can do is look at your balance sheet, the way any business would, release capital from your balance sheet, and put it into new projects.”
Mr Baird also predicted a strong future for the financial services sector in Sydney after a period of constraint.
“Chinese, Korean and Japanese banks are setting up headquarters in Sydney,” he said.
“We also have this new canvas, the Canary Wharf of the Asia-Pacific, Barangaroo, which is a natural place for financial services to grow and expand.”
Mr Baird provided an update on the Government’s Waratah Bond Programme, which he said now approached $70 million and was likely to exceed its $200 million target over four years.
“We are really seeing the Waratah Bonds working,” he said.