Who is taking the risk on large infrastructure projects?

October 14, 2024

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Larger infrastructure developments naturally have increased risks and costs associated with them, with the responsibility traditionally being split between the Federal and State governments, as well as private sector partners. Recently, however, there has been a shift in funding arrangements, with states and territories taking on a greater share of the financial burden. New agreements have been made where the funding split for major projects has moved from an 80:20 ratio to a 50:50 ratio between Federal and State governments.

As a result, state and territory taxpayers are now more involved in bankrolling these projects to ensure projects of national significance are adequately funded and managed.

Large infrastructure project spotlight: Westport

A practical example of this funding shift is the Westport project, which involves significant infrastructure development and is a collaborative effort between various stakeholders, including the Federal and State governments and private sector partners. The risk is shared among these entities, each playing a crucial role in funding, planning, and execution.

Federal and State governments: Both levels of government are heavily involved in financing and supporting the project. The government provides the necessary regulatory framework and funding to ensure the project's success.
Private sector: Private companies are also key players, often involved through public-private partnerships (PPPs). These partnerships help distribute the financial risk and leverage private sector expertise and efficiency.
Community: Local communities and councils are also stakeholders, particularly in terms of addressing local concerns and ensuring the project meets community needs.

By funding in such a way, the risks and benefits of the project are balanced across all stakeholders, making the project more sustainable.

What is the government doing to assist this collaboration?

The Australian Government (both Federal and State) has been working to ease restrictions and challenges for developers and the private sector to encourage more investment in infrastructure and housing projects. This includes several initiatives, such as:

Regulatory reforms: Streamlining approval processes and reducing red tape to make it easier for developers to start and complete projects.
Financial incentives: There are various financial incentives and subsidies available to encourage private-sector investment. For example, the government has increased funding for housing initiatives and provided concessional loans to community housing providers.
PPPs: These partnerships are being promoted to leverage private sector expertise and funding for public infrastructure projects.
Support for affordable housing: Specific measures have been introduced to stimulate the development of affordable housing, including partnerships with private investors and developers.

The end goal is a more conducive environment for private-sector participation, which will ultimately benefit the broader community.

How BDO can help

Our experienced real estate advisory team understand the property investment and development process and the commercial and financial metrics associated with each element of the sector.

We can assist in the preparation of concise and comprehensive investment or business case documents to help you better understand the key risks and opportunities of a real estate-related project.