Treasury wins $30m for Infrastructure Hub as new CEO appointed

By Tom Burton

Wednesday June 3, 2015

Federal Treasury has won $30 million of funding to support the new Global Infrastructure Hub located in Sydney. The Hub was promoted by Australia at last year’s G20 meeting in Brisbane and is an attempt to develop new approaches to private sector infrastructure investment, to make up for the expected short fall in global government capacity to meet infrastructure demand.

Treasurer Joe Hockey announced the funding of $30 million from Australia over five years in a media release also announcing the appointment of former Macquarie Funds executive, Christopher Heathcote, as the inaugural CEO. The Hub is a not-for-profit company limited by guarantee and will be chaired by Treasury secretary John Fraser.

The United Kingdom, China, Saudi Arabia, New Zealand, the Republic of Korea, Mexico and Singapore have also committed to make financial contributions, which together total about $20 million.

The board of directors will include representatives of four G20 countries — the United Kingdom, China, the Republic of Korea and Turkey.

In a statement Hockey said Heathcote has worked at senior levels in both the private and public sectors in the UK and Australia:

“His commercial background in infrastructure finance and experience in policy and regulation will ensure the Hub has effective relationships with stakeholders including the private sector, governments, development banks and international organisations.”

Heathcote, a British national, is expected to commence duty on June 15 and to take up residence in Sydney with his family at the end of June 2015.

Heathcote has been London-based divisional director for Macquarie infrastructure for the last two years and previously worked for four years as global head of infrastructure finance at WestLB AG. He was also global head of project finance for a short period in 2012 at Lloyds Banking Group.

Treasury and the government’s expectations for the Infrastructure Hub were outlined in a recent speech by Treasury Parliamentary Secretary Kelly O’Dwyer, to an Innovation and Infrastructure forum at the National Gallery.

O’Dwyer said the Hub had been tasked with five key work streams:

  1. Developing a knowledge-sharing network by jointly working with governments, international organisations, development banks, national infrastructure institutions, the private sector and infrastructure researchers.
    • The CEO will be crucial to the success of this knowledge-sharing network, as improved collaboration between the many existing sources of expertise and finance.
    • There is simply no point in the Hub duplicating existing sources of information.
  2. Addressing the key data gaps that matter to investors.
    • One clear gap is the lack of data to measure performance of infrastructure as an asset class. If we cannot give investors an accurate picture of expected returns from infrastructure investment, and government benchmarks for comparative projects, then such investments will remain a niche product.
    • Another gap is the lack of comparative cross-country information on project costs, which currently reduces the efficiency of bidding processes.
  3. Giving substance to the leading practices on prioritising, planning, approving and delivery of infrastructure projects, developed by the G20 and the OECD.
    • These leading practices provide a toolkit to assist governments to introduce the necessary conditions and frameworks to encourage greater private sector involvement in infrastructure delivery.
    • However, it is one thing having these leading practices; it is another to have these practices in common use across the globe.
    • The Hub will work with countries to provide customised implementation assistance.
    • It will be a big win for investors if they are more closely involved in government decisions about infrastructure delivery, and if these practices are used more consistently worldwide.
  4. Building the capacity of government officials to improve institutional arrangements.
    • Officials from developing countries will be provided with tailored assistance in the application of best practices in each country, focusing on the requirements for successful project preparation and execution.
    • This capacity building will also involve forums to exchange experiences on policy successes, and facilitate peer-to-peer relationships in equivalent organisations worldwide, allowing officials to draw upon each other’s knowledge and experiences.
  5. Developing a consolidated database of infrastructure projects to help match potential investors with suitable projects.
    • This database will draw together information about investment ready projects from national and multinational development bank databases.

O’Dwyer told the forum finance ministers and central bank governors discussed the global need for improved infrastructure at their first meeting in Sydney last year and expressed a degree of frustration that they were constantly “reinventing the wheel” on infrastructure and not learning from each other’s experiences in planning, preparation and delivery of infrastructure projects.

As discussions progressed over the course of 2014, it became clear there was an appetite within the G20 to establish dedicated resources to address these issues. These dedicated resources would also help to bring down the transaction costs of infrastructure investment and, ultimately, create a more defined and liquid asset class. O’Dwyer said:

“The Hub’s mission to expand the availability of bankable projects, suitable for investment, is crucially important for a country with $1.6 trillion in superannuation assets alone.”

OECD research has found that Australian superannuation funds have been pioneers in infrastructure investing since the early 1990s, with some of the highest allocations to infrastructure in the world (around 4% for the sector as a whole at the end of December 2014).

According to O’Dwyer, there is much potential for further growth, and growth will be assisted by the Hub’s efforts to improve the functioning of infrastructure markets. These include efforts to improve data availability and contribute to convergence in standards for identification, preparation, approval and delivery of infrastructure projects.

At the whole-of-government level, the Hub’s efforts will be complemented by the Asia Region Funds Passport being developed under the auspices of APEC. From 2016, the Passport will mean that fund managers will only have to meet regulations and maintain a physical presence in one country to gain access to markets in other participating countries.

O’Dwyer said the Hub would also act as a policy exchange.

“The Hub is open to G20 and non-G20 countries. It will give G20 and other countries access to the most innovative thinking from around the world, including Australia.

“For example, the Hub will be well placed to draw lessons from the Australian Government’s pioneering Asset Recycling Initiative, which provides financial incentives to States and Territories to sell assets and reinvest the proceeds into productive economic infrastructure.”

She said the Hub would work closely with government agencies and multilateral bodies across the G20 and in Australia collaborate with Infrastructure Australia and other Infrastructure Departments in the states and territories, but it would not and should not duplicate their work.

O’Dwyer said it would also be important for the private sector to have direct input to the board and the CEO on both strategic and operational issues.

“In recognition of this, the Hub’s governance structure will include two independent directors and a Strategic Advisory Council, to allow senior stakeholders from a cross section of global businesses and international organisations to provide advice directly to the Hub’s Board and CEO.

“This Council, which will not have formal governance responsibilities, provides the best mechanism to engage the expertise and goodwill of the very top tier of global business and international organisations.”

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