Title: Infrastructure Asset Recycling: Insights for Governments and Investors

Language: English

Type: Document

Nature: Case Study

Published: January 1, 2018

Region: East Asia and Pacific

Country: Australia

Topic: Asset Recycling

Keywords: Asset Recycling

Document Link(s):

• Infrastructure Asset Recycling: Insights for Governments and Investors

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Document Summary:

Asset recycling offers the opportunity to provide newly-needed infrastructure without adding to public debt, all while maintaining or potentially improving existing infrastructure service delivery.

This report explores how the asset recycling concept has been practically implemented in the context of Australia. From the Australian experience, it discusses the key takeaways for governments that are considering implementing asset recycling schemes.

In particular, the report highlights the importance of accounting for public perception in a successful asset recycling program.

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Document Details:

According to the Global Infrastructure Hub, the global infrastructure investment needs across 50 countries and seven sectors from 2016 to 2040 will reach $94 trillion.1 In Asia alone, infrastructure investment needs from 2016 to 2030 are estimated at $26 trillion, or $1.7 trillion per year, for the region to maintain its pace of development according to a recent report from the Asian Development Bank (ADB).

While governments must take the lead to meet this massive infrastructure need, they cannot fund this level of infrastructure investment alone. Therefore, increased private participation is required to close the financing gap and many governments have increasingly tried to position their countries as favorable destinations for private infrastructure investment.

One mechanism to achieve this has been for governments to attempt to increase the number of Public-Private Partnership (PPP) agreements, but this process is not without its challenges. Where a government has a limited budget to direct towards infrastructure investment, one potential option that has been pursued is infrastructure asset recycling. The concept of asset recycling consists of two main components:

A. The monetization of existing assets through sale or lease to the private sector, followed by

B. Reinvestment in new infrastructure using the proceeds received in the asset monetization

These components can prove to be beneficial from the point of view of private entities and the government, as it can align investor preferences and risk appetites with a government’s infrastructure development plan. Private investors seek to avoid the risks associated with the construction phase of greenfield projects and indicate their preference for brownfield assets, where they can focus their energy and expertise in immediately operating the assets as efficiently as possible.

In this paper, the authors explore how the asset recycling concept has been practically implemented in the context of Australia. From the Australian experience, the authors discuss the key takeaways for governments that are considering implementing asset recycling schemes. In particular, the authors highlight the importance of accounting for public perception in a successful asset recycling program. Private investors and operators considering bidding on recycling assets should also note critical issues around risk management, human capital transition as well as the wider regulatory environment.

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Updated: May 18, 2023