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UBS commissioned report identifies issues impacting infrastructure investment in Australia
Infrastructure investment in Australia is being impacted by a number of policy and regulatory issues according to a report "The future of infrastructure," commissioned by UBS.
In response to the challenge confronted by infrastructure investors in deciding whether to invest in Australia or overseas, UBS commissioned Henry Ergas, Vice President and Head of Asia Pacific CRA International to examine the relevant issues affecting infrastructure investment in Australia.
The main thrust of the report is that there is considerable scope to improve the efficiency of Australian infrastructure investment by ensuring that the incentives facing investors enable future capacity to be timely and sufficient to meet growing demand.
The report's other major findings include:
While there is no crisis in infrastructure investment, over the past two decades there has been a decline in investment in Australia's electricity, gas, water supply and transport systems. This has partly reflected over capacity in some types of infrastructure in the 1970s and 1980s
The "building block" regulatory approach used by most Australian infrastructure regulators has dampened investment incentives as a result of inconsistent application, not allowing an appropriate return for excess capacity, and underestimating social costs such as environmental and congestion costs
The regulatory framework surrounding some Australian infrastructure has contributed to lower rates of return relative to overseas experience, particularly in relation to telecommunications, water and rail infrastructure
The efficiency of infrastructure investment could be improved by addressing policy and regulatory roadblocks, government bias against vertical integration, and some existing tax provisions
Problems with ensuring that government owned enterprises face similar commercial incentives as private firms to reduce costs and innovate persist and in many cases may be best addressed by full privatisation
David Di Pilla, Head of Power, Utilities and Infrastructure at UBS, welcomed the report and commented: "This report highlights the role that governments and the private sector play in ensuring investment in infrastructure is optimal in meeting current and future requirements.
"Given the growing demand for infrastructure investment in Australia, this report is timely and makes a substantial contribution in helping our clients assess investment opportunities and associated risks."
A number of the policy and regulatory issues raised in the report are currently being addressed, resulting in a more attractive infrastructure investment environment in Australia. According to Henry Ergas, "Some of the impediments identified in this report are being tackled through the recent national reform agenda agreed at the last Coalition of Australian Governments (COAG) meeting in February. This is encouraging but it is vital that the reform process does not stall and that all governments continue to support actively such reforms through COAG."
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