To date, many countries that have monetized infrastructure assets have done so on an ad hoc basis, rather than such transactions being based on a broader program of asset recycling. In these instances, proceeds realized have been channeled to specific purposes or consolidated funds for broader budgetary application.
In devising an asset recycling program, it is important to set out the framework for reinvestment of the proceeds generated through monetization. The re-investment framework should be devised to meet the objectives of the government in the development of new infrastructure (e.g., climate resilient infrastructure, complaint with E&S standards). A framework with clear re-investment objectives and mechanisms ensures transparency, accountability and helps engender public trust in asset monetization.
Re-investment mechanisms can be classified into two categories – (1) a retentionbased mechanism, in which the proceeds are retained by the respective public sector entity undertaking asset monetization and (2) a consolidated fund-based mechanism in which the proceeds from asset monetization by all public sector entities are paid into a consolidated fund.
In addition, in order to address concerns from the asset owners, the mechanism should also consider reimbursing costs incurred in recycling the asset and ensuring financial neutrality for the owner before reallocating funds. Establishing a structured mechanism will help mitigate resistance and facilitate smoother asset transfers.
Table 15: Re-investment mechanism framework
| Classification | Re-investment mechanism | Political system and consideration for choice of mechanism | Pros and Cons | |
| Retention-based mechanism |
| Jurisdictions with federal government structure, where political power is divided between a larger central government, the local government, and regional governments | Pros Provides incentives for the asset owners and less reluctance to monetization as the processed from the crown assets is retained by the respective agencies originally owing the assets | Cons Lacks visibility and comprehensiveness of infrastructure planning on a national level |
| Consolidated fund-based mechanism |
| Jurisdictions with a unitary parliamentary structure, where political power rests largely with the central government | Pros Comprehensive review and assessment of the infrastructure needs on a national level, including monitoring of the asset recycling program Allows to prioritize assets and sectors that are on national priority list | Cons Multiple public sector entities might not want to pool monetization proceeds from their assets; hence, additional incentive mechanisms may be required to encourage the various public sector entities |
Retention-Based Mechanism
Under a retention-based mechanism the public sector entity that undertakes the asset monetization scheme retains the proceeds from monetization for future activities. The use of the proceeds may be restricted to approved applications.
Under this approach, the public sector entity may apply the proceeds to pay down existing debt, improve its own assets or build new assets under its purview. To enhance transparency and accountability, the use of the proceeds should be specified so that it is in the public’s interest that assets are monetized. This mechanism may be more appropriate for ad hoc asset monetization schemes rather than a programmatic approach (although the TOT scheme in India is an exception).
Hence, to gain public trust, this mechanism should be adopted considering the two critical success factors for reinvestment identified in sections below.
Fund-Based Mechanism
A fund-based mechanism adopts a systematic and structured approach on a consolidated basis that enables accountability, transparency, and governance.
Under this approach, the government establishes a separate fund to pool together and retain the proceeds from monetizing infrastructure and subsequently apply the funds for specific use.
The creation of a purpose-built fund demonstrates the government’s commitments of reinvesting funds from monetization ensures that there is downstream value-creation from the investment of proceeds into new infrastructure (or other use).
A well-developed and robust governance structure is required for the successful implementation and utilization of such a fund.
Case study on Australia’s fund-based mechanism for re-investment of proceeds
The Restart NSW Fund was established by the Restart NSW Fund 2011 with the purpose of facilitating the funding and delivery of high-priority infrastructure projects that improve the state’s economic growth and productivity. Proceeds from asset monetization are deposited into Restart NSW Fund and are mandated to be re-invested into infrastructure projects.
Specifically, the purpose of the Fund is to improve economic growth and productivity in New South Wales, and for that purpose to fund major infrastructure projects and to fund infrastructure projects that will improve:
- public transport,
- roads,
- infrastructure required for the economic competitiveness of the State (including the movement of freight, inter-modal facilities, and access to water),
- local infrastructure in regional areas that are affected by mining operations,
- hospital and other health facilities and services, and
- workplaces for law and justice officers, teachers, nurses, and other staff providing services to the public.
Application of the funds for projects must be approved by the Minister on the recommendation of Infrastructure NSW, an independent advisory body that advises the government on infrastructure developments and priorities.
To this end, projects must be supported by a sound and comprehensive business case, which must demonstrate viable financial and economical case. The three key components of this project assessment framework are:
- Strategic assessment to ensure the project aligns with the Restart Act criteria and existing priorities
- Economic assessment to ensure the project is expected to produce a net economic benefit and improve economic growth and productivity in the State.
- An independent review process, gateway assurance, to ensure the project has successfully completed the appropriate business case development processes.
Source: Infrastructure New South Wales (https://www.infrastructure.nsw.gov.au/restart-nsw/)
Case study on Reinvestment of Asset Divestment Proceeds under the National Partnership Agreement on Asset Recycling in New South Wales
Background on the National Partnership Agreement on Asset Recycling
The National Partnership Agreement on Asset Recycling (NPAR) is an intergovernmental agreement aimed at addressing funding constraints faced by states and territories in Australia1. The agreement encouraged the sale of state-owned assets to unlock funds to be reinvested into productivity-enhancing infrastructure projects with the following objectives:
- Reduced funding constraints for additional infrastructure investment
- Increased economic activity, employment and improved living standards
- Enhanced productive capacity of the economy
| Key Features of the NPAR | |
| Objectives | Increase infrastructure investment by selling state-owned assets |
| Parties Involved | Commonwealth of Australia and State/Territory Governments |
| Financial Contributions | Managed through an Asset Recycling Pool; funding allocated on a first-come, first-served basis |
| Performance Indicators | Value of sold assets, amount reinvested, overall value of constructed infrastructure |
| Termination | Agreement expires on June 30, 2019, unless extended or terminated earlier by mutual consent |
The NPAR sets out specific eligibility criteria in its investment policy. The projects must:
- Demonstrate clear net positive benefit
- Enhance long-term productive capacity of the economy
- Provide for enhanced private sector involvement in both funding and financing of infrastructure (where possible)
New South Wales Asset Divestments and Projects
The New South Wales (NSW) government divested several state-owned assets under this agreement. The proceeds were then used to support projects aimed at (i) stimulating economic growth and (ii) improving living standards for residents in rural and regional areas.
| Asset Divestments by the NSW Government | |
| Asset to be Divested | Proportion to be Reinvested (%) |
| TransGrid | 100% |
| Ausgrid | 50.4% |
| Endeavoue Energy | 50.4% |
| Government Property NSW | 100% |
| UrbanGrowth NSW | 100% |
| Infrastructure Investments Funded by Asset Divestments | |
| Project / Program | Infrastructure Investment Amount (million) |
| Sydney Metro – City and Southwest | Approx. USD 7,234.2 (AUD 11,303.5) |
| Sydney’s Rail Future – 2018 Timetable | Approx. USD 419.6 (AUD 655.7) |
| Parramatta Light Rail | Approx. USD 334.1 (AUD 522.0) |
| Pinch Points and Clearways | Approx. USD 222.6 (AUD 347.8) |
| Smart Motorways | Approx. USD 256.0 (AUD 400.0) |
| Gateway to the South | Approx. USD 167.0 (AUD 260.9) |
| Regional Road Freight Corridor – New England Highway | Approx. USD 129.3 (AUD 202.0) |
| Regional Road Freight Corridor – Princes Highway | Approx. USD 224.0 (AUD 350.0) |
| Regional Road Freight Corridor – Mitchell Highway | Approx. USD 23.9 (AUD 37.4) |
| Regional Road Freight Corridor – Newell Highway | Approx. USD 336.0 (AUD 525.0) |
| Total Estimated Investment Amount | Approx. USD 9346.8 (AUD 14,604.3) |
Sydney Metro City Stage 2 project – a key recipient of NSW Government’s Asset Divestments
The Sydney Metro City Stage 2 project received AUD 11,303.5 million, 77% of the total estimated investment amount by the NSW Government, under the NPAR, allowing the delivery of the project to be accelerated by five to seven years. The Sydney Metro City Stage 2 is a transformative public transport project in New South Wales, designed to provide a high-capacity, fast, and reliable metro rail service. It is a 30km line that extends the metro network further into the city and surrounding areas, connecting Sydney Metro Northwest at Chatswood to Bankstown via the central business district.
The Sydney Metro City Stage 2 met the NPAR’s eligibility criteria and demonstrated capacity to improve the long-term productive capacity of the economy.
| Parameter | Assessment | Did project meet criteria? |
| Project beneficiaries | Public transport users benefit due to travel time savings and improved rail running reliability | |
| Economic assessment1 |
Note: Present value of benefits includes travel time savings and reliability improvements. It did not include wider economic benefit (e.g. agglomeration impact and uplift in productivity). | Yes |
| Strategic assessment |
| Yes |
Sources: Infrastructure Australia (https://www.infrastructureaustralia.gov.au/sites/default/files/2019-06/Sydney_Metro_City_Southwest_Summary.pdf), Federal Financial Relations Australia (https://federalfinancialrelations.gov.au/sites/federalfinancialrelations.gov.au/files/2021-01/assest_recycling_initiative_np.pdf, https://federalfinancialrelations.gov.au/sites/federalfinancialrelations.gov.au/files/2021-01/nsw_ari_schedule.pdf, https://federalfinancialrelations.gov.au/sites/federalfinancialrelations.gov.au/files/2021-07/Review_NPA_asset_recycling-2019.pdf)