Private players could deliver light rail network

The private sector is developing light rail projects on the Gold Coast and in Sydney, and there is no shortage of investors, builders and operators able to do the same in Perth.

John Laing, Acciona, Capella Capital and Keolis Downer are not widely known names in Western Australia, but they are among the companies that could deliver a light rail project in Perth if the state government opted for a private development.

The planned light rail service from Perth to Mirrabooka, which was promised by both major parties at the last state election, is currently on hold.

The Barnett government is trying to juggle its growing debt with delivery of other infrastructure projects, such as the airport rail link, which it deems more important.

Transport Minister Dean Nalder caused a stir last month, in the process putting himself at odds with multiple experts, by claiming a rapid bus service could be just as good, but much cheaper, than light rail.

The government’s reluctance to move ahead with light rail is at odds with other states, which have opted for public private partnerships (PPPs) to deliver light rail projects.

However, the WA government wouldn’t have to look far for investors or operators if it did opt for private development of light rail.

Institutional investors, including superannuation funds, have shown they have an appetite for PPP projects in WA, which include sporting stadiums, car parks, water treatment plants and prisons.

Many of the investors that have pumped money into PPP projects in WA have also invested in the light rail projects on the Gold Coast and in Sydney.

A prime example is the giant UK-based investment group John Laing, which invests in infrastructure projects across the globe.

It is the major private investor in Westadium, the company that is developing the $918 million Perth Stadium.

John Laing is also a major shareholder in the Altrac consortium, which in February signed contracts to build and operate a $2.1 billion light rail project in Sydney’s CBD and eastern suburbs.

Its co-investors in the Sydney light rail project include Spanish group Acciona Concessiones.

Acciona is also familiar with the WA scene, as it holds a 24 per cent shareholding in the Helena Water consortium.

Helena Water completed the first PPP in the water industry in WA last year, after building a $370 million water treatment plant at Mundaring.

The biggest shareholder in Helena Water is Aberdeen Asset Management, which has a diverse portfolio of Australian infrastructure projects.

It is an equity investor in the new Perth Stadium, alongside John Laing.

In addition, Aberdeen and John Laing have invested together in Queensland’s $4.4 billion New Generation Rollingstock project, which involves the private purchase and maintenance of 75 new trains.

Branching out

Like many cities that have light rail services, the Sydney network has grown incrementally.

It started with an inner-west service, which the NSW government extended last year.

That will link to the new CBD service, which will run 12 kilometres from Circular Quay to Randwick.

The NSW government is also in the planning phase for a Parramatta light rail service.

The operator of the inner-west service and the planned CBD service is Transdev, a joint venture between two giant French multinationals.

Transdev is already active in the WA transport sector, as one of three private groups that operate metropolitan bus services on behalf of Transperth.

The other private bus companies in Perth include Path Transit, which was bought last month by Keolis Downer, a joint venture between French public transport company Keolis, and diversified Australian contractor Downer.

Keolis Downer is the operator of Melbourne’s iconic tram service and the Gold Coast light rail system, which began operations last year after being developed as a PPP at a cost of $1.3 billion.

The companies behind the Gold Coast project include construction firm McConnell Dowell and railcar manufacturer Bombardier.

They teamed up with Keolis Downer for an unsuccessful bid for the Sydney CBD project, indicating their appetite for more PPP projects.

Capella connection

The company that played a key role in putting together the winning bid for the Sydney light rail project was Lend Lease subsidiary Capella Capital.

Capella has a strong WA connection, having won two substantial PPP projects and been shortlisted on others.

It put together the Capella Parking consortium, which developed and now runs the $140 million multi-storey parking facility at the QEII Medical Centre.

The equity investors in that project are Catholic Super and Lend Lease Infrastructure Investments.

Capella Capital was also the sponsor of the Assure Partners consortium, which is near to completing the development of the $232 million Eastern Goldfields Regional Prison.

The equity investors in the prison project are Lend Lease Infrastructure Investments and National Australia Bank subsidiary MLC.

Capella managing director John Bowyer said superannuation funds were keen to find more infrastructure investment opportunities.

“In the past few years, we’ve seen the super funds substantially increase their asset allocation towards infrastructure,” Mr Bowyer told Business News.

He said most super funds had between 5 and 10 per cent of their assets invested in infrastructure, and some were higher.

That meant they were looking for larger projects.

“The investors would rather invest more rather than less,” he said.

The lack of opportunities in Australia means local super funds are investing more overseas.

Last month, for instance, IFM Investors, which represents industry super funds, paid $US5.7 billion for a toll road in the US state of Indiana.

The attraction of infrastructure assets is that their long term and steady income stream broadly matches the payout liabilities of super funds.

“We want the majority of investors to be long-term investors, and so does government,” Mr Bowyer said.

Mr Bowyer said the new Perth stadium used a co-funding model that was increasingly common.

The state will contribute 60 per cent of the construction cost, during the three-year construction phase.

The Westadium consortium has procured the balance, through its equity investors (John Laing and Aberdeen) and bankers (NAB and CIBC).

In addition, the state will make monthly service payments during the 25-year operating phase of the contract.

A spokesman for treasurer Mike Nahan said this covered the remaining 40 per cent of the construction costs, plus financing and maintenance costs, including lifecycle replacement.

Mr Bowyer said this kind of arrangement took advantage of the lower borrowing costs enjoyed by state governments.

“These payments reduce the private sector debt, which lowers the average cost of debt for the overall project,” he said.

Mr Bowyer believes the discipline of private sector ownership results in a more competitive outcome for new infrastructure projects.

The private owners also bear the risk of any construction blowouts or operational problems.

The Treasury department agrees; it estimates the Perth stadium will be 21 per cent cheaper as a result of the private sector involvement, based on a competitive design and construction cost and competitive facilities management costs.

Similar savings have been estimated for other PPP projects.

Dr Nahan’s spokesman said government agencies were required to analyse procurement options, including PPPs, for all major projects.

That has resulted in one major new PPP project since Dr Nahan became treasurer.

Three private consortia have been shortlisted to build, fund and maintain eight new schools, at an estimated capital cost of $370 million.

It remains to be seen whether light rail will follow.