Government position on Badgerys Creek clips the wings of infrastructure

The Government’s position on Sydney’s second airport runs counter to long-running calls for greater infrastructure investment.

Sydney Airport CEO Kerrie Mather says the company is now undertaking an evaluation of the project.

Sydney Airport chief executive Kerrie Mather hit the nail on the head in her response to the Federal Government’s insistence that her company bear the full cost of developing a second airport at Badgerys Creek.

It is going to be a challenging investment to make without any Federal Government funding. That’s not just the view of Sydney Airport, but for anyone considering developing such a big, complex and long-dated project as an airport.

Up until the global financial crisis there was no end of availability of money to fund big pieces of kit like toll roads. But many of them ended in financial disaster for the developers, who used over-optimistic traffic forecasts to justify the huge costs and then couldn’t attract the paying customers to sustain the debt. BrisConnections and Sydney’s Cross City Tunnel, airport rail link and Lane Cove Tunnel are among the big pieces of private sector infrastructure that went broke and were sold to new owners at a fraction of their development cost. Wiggins Island coal terminal is heading that way.

In this low interest rate world there is no shortage of money looking to invest in long-life, low-risk assets like toll roads, ports, and electricity grids. But the post-GFC wash-up of painful losses and lengthy restructurings has prompted a major rethink of private infrastructure development. Most banks and investors won’t touch a greenfield development without some sort of participation to de-risk the investment. New South Wales has shown the way in this respect, with developments such as the new convention centre and the massive WestConnex motorway being developed by the Government, and the commercial fundamentals being established before the asset is onsold to fund the next stage of development or another project.

Attracting airlines and passengers would be the biggest risk facing a developer of the new airport and is one reason banks would be wary of lending to it.

That’s another reason why Sydney Airport, which has a first right of refusal to develop Badgerys Creek, would be a logical operator. While a competing facility with the $6.5 billion asset bought by Macquarie Bank in 2003, it would provide a release for ever more strained capacity at Botany Bay and a later curfew that could increase the flexibility of airlines in bringing passengers to and from Sydney.

In deciding to play hardball with Sydney airport the government is at least being consistent with recent budget decisions. In May it withdrew $850 million of remaining funds available for the asset recycling initiative that paid an incentive to State Governments which sold existing assets and used the proceeds to develop new infrastructure. On the other hand, it is partnering with private sector group Qube in the $1.5bn development of the Moorebank road and rail terminal for shipping containers, by chipping in land and $370m of the development costs.

But the decision runs counter to the long-running calls in Australia for greater investment in public infrastructure to pick up the slack from the end of the resources development boom and expand the productive capacity of the economy. President-elect Donald Trump made infrastructure spending a central feature of his election campaign, while the UK government is ramping up investment in this area to counter an expected investment drought resulting from the decision to leave the European Union.

The risk for the Federal Government in withholding funding from Sydney Airport to develop Badgerys Creek is that no-one else will want to step into its place, and the Government may have to fund the whole project itself. Or pay someone else to do it.