The Initiative is a 5 year programme with funding allocated to specific, unfunded State infrastructure proposals on a first come, first served basis. States and Territories have up to 2 years from commencement of the Initiative to agree on the specific existing assets to be sold and the additional infrastructure investment to be constructed.
States and Territories will receive 15 percent of the price of the asset sold as an incentive if all the sale proceeds are allocated to new infrastructure investment. If some of the proceeds are used for other purposes (eg debt repayment), the incentive payment will be reduced proportionally.
The Initiative represents an opportunity for States/Territories to unlock their balance sheets, but the programme should also be considered by investors.
We are yet to see any detailed rules governing how the Initiative will work. Potential questions that may arise include:
- how are the sale proceeds to be defined for a particular sale? Is stamp duty included, and how will this influence the tax cost bases of assets acquired?
- adjustments to the incentive payment may be made if the sale of an asset results in a ‘direct cost’ to the Commonwealth. How will this influence decisions to make a non conforming bid?
The rules will be another consideration for investors bidding for State assets linked to the recycling Initiative and will influence not only how a State divests its existing assets and its timing but also an investor’s choice as to the type of investment structure it may prefer to use.