Robust sector-specific pipelines enable effective asset-recycling program

Transgrid Privatization

Context

• Australia’s national government introduced policy to incentivize asset recycling by state-level governments, by offering up to 15% of the sale or lease proceeds of asset privatizations for re-investment in infrastructure projects
• New South Wales’ (NSW) state government identified infrastructure investment as one of its key targets, and aimed to leverage the policy

Problem

• The NSW state government sought to raise USD 13.5B to invest in local infrastructure projects via asset sales and leases
• NSW state government faced a politically complex challenge with asset privatizations given public concern over job losses

Innovation

• NSW government developed a robust, sector-specific pipeline of opportunities for investment
• NSW government’s approach to selecting assets for recycling allowed it to raise USD 6.9B for infra-investment and an additional USD 670M for re-investment from the national government
• NSW government included guaranteed- employment clauses in employee contracts to allay concerns over job losses

Stakeholders Involved

• NSW Electricity Networks — A consortium of private investors (incl. ADIA2 and Hastings Fund Management) who led the transaction on Transgrid
• NSW Government — Developed sector-specific offerings for private investors
• National Government — Incentivized asset-recycling by offering funds for re-investment in infrastructure

Results/Impact

• NSW State Government leased Transgrid for 99 years to a private sector consortium for USD 6.9B, raising c. USD 4.7B of capital to invest in new infra-projects such as Sydney Metro
• Transgrid’s privatization secured funding from the national government's asset-recycling incentive program that NSW government used to support the building of schools, health facilities and other socially critical infrastructure
• The Transgrid privatization set a precedent for further privatization transactions including the partial privatization of state-owned energy producers Ausgrid and Endeavour Energy; altogether, NSW government reached its USD 13.5B funding goal for new infrastructure across the three privatizations

Key lessons learnt

• Asset recycling requires building sector-focused pipelines of assets that the private sector find attractive; this is particularly impactful as private participants can spread up-front due-diligence costs over multiple projects
• Manging public concern around wide-scale privatization initiatives is critical to success; NSW government utilized 5-year guaranteed employment clauses for Transgrid employees
• Governments need to have clear investment targets for the proceeds of transactions to ensure wider social benefits of infrastructure development are shared effectively with the relevant population