29/06/2015 - 05:57

Asset sales to plug infrastructure gap

29/06/2015 - 05:57

Bookmark

Save articles for future reference.

The need for new infrastructure is there, but the state isn’t in a financial position to drive development.

The need for new infrastructure is there, but the state isn’t in a financial position to drive development.

As the dust settles from the mining boom, there is much hope among construction contractors that the state’s need for infrastructure will help offer alternative opportunities.

The need is certainly there. Western Australia’s population growth over the past decade alone has prompted significant demand for all manner of infrastructure projects.

But the state government is not necessarily in a financial position to deliver on that need.

The boom years had their own demands for infrastructure and, at great expense due in part to the rush and competition from resources companies, quite a bit of it was built – at a cost.

That has left the state with less financial muscle to do what still needs to be done, even though its dollar can be stretched much further as the huge expansion in the resources industry comes to an end.

Without savings and with revenue curtailed, the state government has finally committed to selling assets. Too little, too late may have been the initial call, but increased financial and political pressure has prompted further asset reviews.

Bigger assets are now on the block, and these are often more attractive to investors desperate for strong income streams during this period of low returns.

There is much more to be done in this space and Colin Barnett has finally prepared the ground for privatisations by hitting the financial panic button around recent negotiations over the GST. No-one in this state could have missed the argument that the coffers are empty.

Just why there is an issue around privatisation is unclear.

Mr Barnett is an economist and the head of a conservative government. Prior to his election in 2008, he had been a cabinet minister in the previous Liberal state government, which had a successful track record in selling assets. The gas network and a major pipeline, the state insurer and the state bank were among the major sell-offs during the 1990s.

There is nothing about those privatisations that could be considered to have deeply haunted the current Liberal-led government.

In fact, as voters squeal about electricity price rises, the retail cost of gas is a non-event.

The fact that few outside corporate Perth know that Canadian giant Atco owns the city’s gas reticulation network is revealing in itself. This drama-free infrastructure ownership story could easily be replicated across the electricity network and forever remove the state government from the regular and dangerous political manoeuvring around prices.

Despite the uproar around Serco’s performance at Fiona Stanley Hospital, WA has numerous examples of successful private operations in health, prisons and education to prove that the state does not have to own assets in these areas.

One of the benefits of the boom and the growing need for infrastructure to service a much bigger population has been the arrival of foreign and interstate companies, which often have a track record in doing things that narrow-minded locals claim cannot be done.

While we may prefer WA companies won all the business, the need for expertise, capital and political peace of mind means that having experienced partners from elsewhere is often a necessity.

The challenge is to benefit from such outsiders without squeezing the space for locals.

Already, firms focused on construction up north have turned their attention to Perth and the south where the population lives. They are hoping their flexibility and can-do attitude will win them business, keeping staff employed and investors happy.

But it is doubtful that everyone who wants work will be satisfied by what’s on offer from a government if it remains financially constrained.

Unless genuinely significant and successful asset sales take place soon, it is unlikely that the funding will be available for every bit of infrastructure the public wants and the construction firms need.


STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options