Submissions do not raise significant financial system issues that directly relate to infrastructure financing. Where issues are raised, these relate more to issues covered elsewhere in this report, such as the development of the corporate bond market.
The major issues submissions raise relate to infrastructure project selection and design, and the implications for the pipeline of greenfield projects. This is consistent with the Productivity Commission’s recent draft Public Infrastructure report. The Commission found:
There is no shortage of private sector capital that could potentially be deployed to finance public infrastructure in Australia. Private capital markets will finance most projects at the ‘right price’.69
Submissions note a shortage of profitable infrastructure projects to invest in. Industry Super Australia states:
Industry SuperFunds have already made clear that they would make infrastructure investment of up to $15 billion over the next five years if appropriate projects were made available. Reform of the bid process could well see them accelerate or even increase that projected level of investment.70
A number of submissions suggest that funding for infrastructure has become more expensive since the GFC. Interest rate spreads on infrastructure projects have increased, including in Australia, Canada, the United Kingdom and the United States.71 However, this mainly reflects the general re-pricing of risk.
Investments in infrastructure are viewed by some as being illiquid. Infrastructure investment could be facilitated by developing liquid, tradable claims on infrastructure projects. This could provide greater scope for retail and institutional investors, including superannuation funds, to invest in infrastructure.
The Inquiry seeks further information on the following area:
What are the impediments to the development of liquid, tradeable claims on infrastructure projects?
70 Industry Super Australia 2014, First round submission to the Financial System Inquiry, page 9.
71 Work by McKinsey Global Institute suggests that interest rate spreads (over LIBOR) for infrastructure projects in advanced economies have increased by less than 100 basis points since the GFC. McKinsey Global Institute 2013, Infrastructure Productivity: How to Save $1 trillion a Year, McKinsey, Dubai, page 21.