After spending four days in Sydney, Infrastructure Minister Amarjeet Sohi says he's convinced Canada can attract private infrastructure investors while avoiding some of the fallout that similar efforts have faced in Australia.
But as Canada follows its Commonwealth ally's lead, Australia is showing signs of softening its full-throated embrace of privatized infrastructure.
Australia cancelled a signature program called "asset recycling" last year that was aimed at selling off government assets to fund new projects. More recently, the Australian government said it will change its budget reporting to reflect the distinction between good and bad debt in an effort to promote the benefits of traditional government borrowing to build infrastructure. Australia's 2017 budget also announced direct public funding of major road and rail projects.
The Canada Infrastructure Bank, a $35-billion initiative that was approved by Parliament in June, is heavily inspired by Australia's efforts to attract private infrastructure investors. Whether Australia's record is one of success or failure remains a point of heated debate there. Some projects have clearly been controversial, including massive tunnel programs worth billions that ended with private backers in receivership.
Canada's bank will share some similarities with a government agency called Infrastructure Australia, including the provision of expert advice to governments on how to structure deals with the private sector. Unlike the Australian model, the Canadian bank will have its own budget to fund or finance projects.
While in Sydney during a recent visit, Mr. Sohi met with Infrastructure Australia CEO Phil Davies as well as government officials and private infrastructure investors, including Grant Smith, executive director of Macquarie Infrastructure and Real Assets.
"What we are doing in Canada is a very innovative undertaking that no other country has done to the extent that we have," Mr. Sohi said in an interview. He said Canada's approach will have important differences that should avoid some of the problems in Australia. He noted that Ottawa's plan is not centred on privatizing assets to raise funds. Also, governments must sign off that any bank projects are in the public interest and the bank's budget is a small fraction of the more than $187-billion Ottawa will spend on infrastructure over 12 years.
"We continue to see the role of our government in providing grant funding through bilateral agreements and the bank being a small part of the overall plan," he said. "I think that was well-received by some of the political proponents that we talked to about this [in Australia], because they understand that the slower you move on this … the better the results will be."
Politics is a clear dividing line in Australia when it comes to infrastructure. Since 2013, Australia has been led by the Liberal Party of Australia, which is more conservative than the left-leaning Australian Labor Party, the country's other main political party. Australia is divided into six states and two territories.
The Australian Liberal government brought in an incentive program in 2014 called asset recycling that provided a financial reward to state governments that privatized assets. State reaction to the incentive largely broke down along partisan lines, with like-minded New South Wales praising the program as the "secret sauce" of success, while some Labor-led states declined to participate. Australia cancelled the program in 2016.
In Canada, Finance Minister Bill Morneau's advisory council on economic growth recommended adopting a similar program. Mr. Morneau's 2017 budget opted not to follow that advice, but Ottawa has not ruled out the full or partial privatization of federal assets such as ports and airports.
Governments around the world are eager to attract the billions in capital managed by global pension funds and those funds are increasingly interested in infrastructure as an option for safe, reliable returns. The Canada Pension Plan Investment Board is among the investors currently operating in Australia.
For instance, the fund invested $525-million – representing a 25-per-cent ownership stake – in a nine-kilometre highway tunnel in suburban Sydney three years ago. Last month, the Auditor-General of New South Wales reported that the project represented "value for money" for taxpayers and the audit report did not raise any major concerns.
John Quiggin, an economics professor at the University of Queensland, said other privately financed projects such as a $4.8-billion toll road tunnel to the Brisbane airport, led to "disastrous losses for investors" as the original consortium went into receivership.
He said it would appear from Mr. Sohi's Sydney itinerary that he would have received a one-sided view of Australia's experience. Prof. Quiggin said there have been several recent examples of Australian governments moving in the opposite direction, expanding public ownership in areas such as power generation.
"Looking at the itinerary, the minister will have spoken almost exclusively to advocates of private infrastructure, who will have told a rosy tale," he wrote in an e-mail. "The fact is that these guys have lost the debate, as witnessed by the sudden surge of new public enterprises."
Jeff Kennett, a former Liberal premier of the state of Victoria who approved his state's first private toll road in the 1990s, has said those types of arrangements don't make sense for governments with healthy finances. Known as CityLink, the toll highway opened in 1999 at a cost of $1.8-billion. Australian newspaper The Age estimated that the private owner, Transurban, is on pace to collect more than $20-billion in revenue by 2034 (The figures were reported in nominal terms in Australian dollars, which are roughly at par with Canadian currency).
"A triple-A credit-rated government has a capacity to borrow money at interest rates much cheaper than that of the private sector," he told The Age last year. Mr. Kennett said he still supported tolls, but that the revenue shouldn't go to private investors.
"If government collected tolls … it could fund a whole lot of infrastructure," he said.