The Asset Recycling Initiative helping states unlock their balance sheets
The Budget includes $5 billion to establish the Asset Recycling Initiative - a key element of the Infrastructure Growth Package - to provide incentive payments to states and territories that sell assets and reinvest the sale proceeds to fund world‑class infrastructure across Australia.
Under this historic partnership, states and territories will be encouraged to unlock capital in their balance sheets to fund new investment in productive infrastructure across the country. If some of the proceeds are used for other purposes, the incentive payment will be reduced proportionally.
The Asset Recycling Initiative will create opportunities for investors, including Australian superannuation funds, to invest in quality infrastructure assets around Australia. This Initiative will leverage a significant increase in private sector investment by putting assets previously owned by the government in private hands. Over time these investors are likely to increase capital investment in the newly privatised entities to improve market share and to grow their businesses.
In a sign of strong support from states and territories for the Government's commitment to get infrastructure investment moving, all governments signed the National Partnership Agreement on Asset Recycling at the Council of Australian Governments meeting on 2 May 2014. This unanimous support for the agreement demonstrates constructive and cooperative federalism at work.
Asset Recycling Initiative - eligibility criteria
For projects to be eligible for funding under the Asset Recycling Initiative, states and territories must bring forward infrastructure projects that:
- demonstrate a clear net positive benefit;
- enhance the long-term productive capacity of the economy; and
- where possible, provide for enhanced private sector involvement in both the funding and financing of infrastructure.
How the Initiative works
The Asset Recycling Initiative is a five‑year programme with funding allocated to specific proposals on a first‑come, first‑served basis. States and territories will have up to two years from commencement of the Agreement to agree with the Commonwealth the specific assets to be sold and the additional infrastructure investment to be supported by the Initiative.
States and territories will receive 15 per cent of the price of the asset sold if all the sale proceeds are allocated to new infrastructure investment.
Payments will be made over two instalments on the achievement of key milestones. The sale of the asset must be completed and the construction of the additional infrastructure must commence on or before 30 June 2019.
The Government's $5 billion investment through the Asset Recycling Initiative will leverage close to $40 billion of new infrastructure investment from the states and territories. This infrastructure investment will reduce congestion, improve market access for goods and labour, and increase safety.
To help facilitate private sector engagement in the Asset Recycling Initiative, the National Infrastructure Construction Schedule (NICS), the Government's national online infrastructure investment pipeline, will be used to publish details of the proposed asset sales. More information about NICS is available at www.nics.gov.au.
How the Asset Recycling Initiative works
Scenario 1: State invests all proceeds in new infrastructure
State A decides to privatise Port Thomas under a 99‑year lease with expected net sale proceeds of $1 billion, based on book value, and to reinvest 100 per cent of these proceeds in additional road investment in the capital city and regional areas, consistent with the eligibility criteria for new investments under the Agreement.
Under the terms of the Agreement State A will expect to receive $150 million as an incentive payment, in two instalments of $75 million.
Scenario 2: State pays down 50 per cent of debt and invests remainder of proceeds in new infrastructure
State B seeks to privatise the XYZ Energy Company with expected net sale proceeds of $5 billion and intends to reinvest 50 per cent of the proceeds into new rail and road infrastructure consistent with the eligibility criteria for new investments under the Agreement.
Under the terms of the Agreement State B will expect to receive $375 million as an incentive payment, in two instalments of $187.5 million.