The occasional questioning voice about our infrastructure
funding deals is rapidly turning into a very loud chorus that’s in danger of
drowning out the band. Anyone want to tell Brisbane
about that before it commits to some expensive tunnels of its own?

The potential upside is that the vaunted public-private
partnerships might actually become a reasonable deal for the public instead of
a rip-off, as long as the relevant governments know what they’re doing. The
potential downside is more mistakes like Sydney’s
Cross City Tunnel where everyone – investors, public and politicians – looks
like losing.

The latest voice – admittedly self-serving – belongs to
Sydney investor David Coe who told his Record Investments AGM
yesterday that Australian infrastructure was “fully-priced” ie the bargains
have all been snapped up and the dumb state governments have wised up a
bit. The SMH report is here.

Eureka Report publisher Alan Kohler nailed the issue in hisSmagecolumn
yesterday, using Southern Hydro as a prime example. AGL
is paying $1.425 billion for the hydro and wind farm electricity
generator – more than double the price New Zealand’s Meridian Energy
paid for it two years
ago. And the thing is projected to not make money.

What’s made
infrastructure here “fully priced”? Competition by deal makers and
superannuation funds for a slice of the action. That’s effectively pushed down
yields.

The early movers
have already moved on. The Macquarie Bank money machine has pulled out
of the Brisbane tunnels tender but is going hell for leather
overseas on everything from a new Gdansk container port to Danish
airports to Isle of Man
ferries, but the big game is shaping up as US toll roads.

What’s left here
is the potential for reasonable but not great returns on projects with
shrinking risk/reward margins. The various state governments remain
dogmatically scared of debt funding, so they will continue to flog off the
right to tax to private parties, but competition for the assets should at least
be able to limit the damage done to tax payers.
Examples of the never-ending eye-and-wallet gouge, such as Sydney Airport and the Eastern Distributor, might become
rarer.

We can only hope.
But the fundamental disconnect is that all these deals are done by politicians
with short term (electoral cycle) priorities negotiating with investors who
have long term goals. The long game will win 90% of the time.